Bright Horizons (BFAM) Q2 2026 Earnings Call Transcript

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DATE

Thursday, July 30, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• Group Vice President, Strategic Finance - Michael Flanagan
• Chief Executive Officer - Stephen Kramer
• Chief Financial Officer - Elizabeth Boland

TAKEAWAYS

• Revenue -- $779 million, representing 7% growth driven by expansion across Back-up Care and full service segments.
• Adjusted EPS -- $1.28, increasing 20% year over year as a result of improved operating efficiency and margin expansion.
• Back-up Care Revenue -- $194 million, growing 19% due to an increase in unique users and higher booking frequency.
• Back-up Care Adjusted Operating Income -- $50 million, an increase of 23% reflecting strong utilization and volume conversion.
• Back-up Care Operating Margin -- 26%, expanding 80 basis points over the prior year quarter.
• Full Service Revenue -- $557 million, increasing 3% primarily through tuition rate increases and favorable foreign exchange impacts.
• Full Service Adjusted Operating Income -- $44 million, growing 10% as tuition increases stayed ahead of average wage growth.
• Full Service Operating Margin -- 7.9%, an expansion of 50 basis points aided by performance improvements in U.K. operations.
• Enrollment Growth -- approximately 1% in centers open more than one year, excluding the impact of contraction in Australia.
• Australia Headwind -- a 100 basis point reduction in total enrollment growth and an approximately 150 basis point drag on full service margins.
• Average Occupancy -- reaching the high 60% range, or 70% when excluding Australia, reflecting continued recovery across the portfolio.
• Education Advisory Revenue -- $28 million, remaining consistent with the prior year as growth in College Coach was offset by lower engagement in EdAssist.
• FY 2026 Revenue Guidance -- narrowed to a range of $3.085 billion to $3.115 billion based on current business trends.
• FY 2026 Adjusted EPS Guidance -- raised to a range of $5.05 to $5.15 reflecting strong performance in the first half of the year.
• Q3 2026 Revenue Guidance -- projected at $835 million to $845 million, representing growth of 4% to 5%.
• Q3 2026 Adjusted EPS Guidance -- estimated in the range of $1.73 to $1.78.
• Share Repurchases -- $250 million during the quarter, bringing the total for the first half of 2026 to $475 million.
• Cash from Operations -- $95 million generated during the second quarter.
• Net Leverage Ratio -- 2.2x net debt to adjusted EBITDA, reflecting active share repurchase activity over the last year.
• Fixed Asset Investments -- approximately $19 million in capital expenditures during the quarter.
• Full-Year Interest Expense -- expected to be $58 million to $60 million due to higher average borrowings and effective rates.
• Full-Year Diluted Share Count -- projected at 51.5 million shares for the year.
• Full-Year Adjusted Effective Tax Rate -- estimated at 28.5%.
• Center Closures -- impacted full service revenue by approximately 250 basis points as the company optimizes its portfolio.
• Average Price Increases -- 4% for the year, implemented to offset labor costs and support margin recovery toward historical targets.

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RISKS

• Boland stated, "the $20 million to $25 million we expect to be losing in that geography is roughly 150 basis points of headwind," referring to the negative financial impact from underperforming operations in Australia.

SUMMARY

Management reported that Bright Horizons Family Solutions Inc. (NYSE:BFAM) maintained growth momentum through the second quarter, driven by the durability of its employer-sponsored model and double-digit expansion in the Back-up Care segment. The company stated that occupancy gains and tuition increases supported margin expansion in the full-service business, despite ongoing enrollment challenges in Australia. Strategic efforts remain focused on deepening penetration within the existing client base, expanding the ecosystem of care through initiatives like employer-sponsored summer camps, and transitioning self-operated childcare programs to the company's management. Management updated its full-year outlook to reflect higher earnings expectations while continuing to optimize the center portfolio through disciplined closures of underperforming locations.

• CEO Kramer highlighted the "instant book capability" as a primary competitive advantage, noting that a majority of network care is now secured through this real-time technology.
• The company expanded its summer camp offerings, including an on-site Steve & Kate's camp for AT&T in Atlanta and several programs for hospital and energy sector clients.
• Management reported that three full-service centers opened in the quarter resulted from an academic medical center transitioning from 20 years of self-operation to Bright Horizons management.
• CFO Boland noted the bottom cohort of centers (those below 40% occupancy) decreased from 10% to 5% of the total portfolio year over year.
• The company is evaluating strategic options for its Australian operations after identifying enrollment degradation and staffing misalignment in that specific geography.
• Management confirmed that the core enrollment growth (excluding Australia) was approximately 100 basis points in the quarter, with 53% of centers now operating above 70% occupancy.
• Kramer stated that the company sees "a lot of white space" for garnering new logos in the Back-up Care segment, which has delivered double-digit revenue growth for 15 years.

INDUSTRY GLOSSARY

• Back-up Care: Temporary or emergency child, adult, or elder care provided when a family's regular arrangements are unavailable.
• Full Service Center-Based Child Care: Traditional, ongoing early education and child care services typically provided at employer-sponsored or community locations.
• EdAssist: The company's workforce education platform that manages tuition assistance and student loan repayment programs for employers.
• College Coach: An advisory service that provides personalized guidance from experts to help families navigate the college admissions and financial aid process.
• Adjusted EPS: A non-GAAP financial metric that adjusts earnings per share to exclude certain items like stock-based compensation and amortization of intangible assets.
• Lease Consortium Model: A center-based care model where Bright Horizons leases a facility and serves multiple employer clients and their employees at that single site.

Full Conference Call Transcript

Operator: Greetings. Welcome to the Bright Horizons Family Solutions second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Michael Flanagan, Group Vice President, Strategic Finance at Bright Horizons Family Solutions. Thank you, Michael. You may begin.

Michael Flanagan: Thanks, Liz. Welcome to Bright Horizons second quarter earnings call. Before we begin, please note that today's call is being webcast, and a recording will be available under the investor relations section of our website at investors.brighthorizons.com. As a reminder to participants, any forward-looking statements made on this call, including those regarding future business, financial performance, and outlook, are subject to the safe harbor statement included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and should be considered in conjunction with the cautionary statements that are described in detail in our earnings release, our 2025 Form 10-K and other SEC filings.

Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statements. Today, we also refer to non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available on the IR section of our website at investors.brighthorizons.com. Joining me on today's call is our Chief Executive Officer, Stephen Kramer, and our Chief Financial Officer, Elizabeth Boland. Steven will start by reviewing our results and provide an update on the business, Elizabeth will follow with a more detailed review of the numbers before we open it up to your questions. With that, let me turn the call over to Steven.

Stephen Kramer: Thanks, Mike. Thank you to everyone joining us this afternoon. I am pleased with our performance in the second quarter and through the first half of 2026. Revenue expanded by 7% to $779 million, with growth across both Back-up Care and full service, adjusted EPS increased 20% to $1.28, both ahead of our expectations. Back-up Care again led our growth, while improving operating efficiency drove margin expansion in both segments. These results reinforce the strength and durability of our employer-sponsored model and the value of our differentiated portfolio of care and education solutions. On our first quarter call, we introduced a new investor presentation highlighting our client-centric business model, our competitive advantages, and the breadth of our long-term growth opportunities.

Within Back-up Care, our largest segment by earnings contribution, we outlined three key growth drivers: deepening penetration within our existing clients, expanding our ecosystem of care and education solutions, and winning new logos. Let me update you on our progress on all three fronts. Starting with deeper penetration, Back-up Care revenue grew 19% to $194 million in the quarter, accelerating from 12% growth in the first quarter. Usage growth was strong across care types and was largely driven by more unique users, as well as an uptick in frequency of use. Key to driving deeper penetration within our clients is the breadth and quality of our care network and our technology platform.

We have made significant investments over the past several years to both enhance the booking process and expand access to care solutions. Today, families can confirm care in real time through our instant book capability, and we now see the majority of our network care and Back-up secured this way. Combined with our broader service network, this creates a seamless on-demand experience that allows us to reliably connect families with trusted care across care types and geographies. Our ability to deliver quality care with this level of ease, reliability, and scale drives deeper engagement and is a true competitive advantage. Turning to the expansion of our ecosystem.

Employer camps have become a natural extension of how we support clients to address their evolving workforce needs. This summer, we expanded our on-site Steve & Kate's camp for AT&T to its Atlanta campus, building on last year's successful pilot at its Dallas headquarters. We are also operating five camps for a leading multi-site hospital system, one camp serving an energy company in Texas, and a consortium camp serving two large banking employers in North Carolina. These camps demonstrate how we use our unique delivery capabilities and client relationships to develop additional ways to serve the increasing range of needs of employer clients and working parents. Turning to our third Back-up growth lever, new and ramping clients.

Utilization continues to build among recently launched clients. Some additions include a Fortune 500 global consumer company and a Fortune 500 global industrial company. These relationships demonstrate the broad relevance of our care solutions and provide an additional source of growth as they launch and mature. Overall, Back-up Care continues to deliver solid double-digit revenue growth, extending an impressive 15-year track record. This is a high-margin, capital-light business serving a large and under-penetrated market. With meaningful runway across each of our three growth avenues, we believe Back-up Care is well-positioned to remain a durable driver of revenue and earnings growth. Turning to full service. Revenue grew 3% to $557 million, in line with our expectations.

Growth was driven by tuition increases and a favorable impact from foreign exchange, partially offset by continued enrollment headwinds in Australia and the impact of center closures as we continue to optimize the portfolio. We opened seven centers in the quarter, including five for employer clients here in the U.S. Three centers were for a leading academic medical center that had self-operated their centers for more than 20 years before making the decision to have Bright Horizons assume the management of these programs with their ongoing financial support. This illustrates the transition opportunity that continues to exist within employer-sponsored care, especially within healthcare and higher education institutions. A decision by an employer to self-operate is not necessarily permanent.

When employers' needs and circumstances change, our market leadership expertise and operating scale make us the partner of choice for leading employers to transition the management of their centers. The other two employer-funded client centers opened in the quarter are new work site locations developed around these employers' specific needs, exclusive to their employees, and reflective of these clients' HR strategy and desire to meet employee needs. Together, these center openings illustrate the opportunity to grow our employer-sponsored center footprint through transitioning established programs to Bright Horizons management and partnering with employers on new centers for their employees. Occupancy averaged in the high 60% range in the quarter.

In fact, 70%, excluding Australia, up sequentially and reflecting continued recovery across the broader portfolio. Enrollment in centers open for more than one year increased approximately 1%, excluding the impact of enrollment contraction in Australia, which was roughly 100 basis point headwind. The pressure in Australia remained broadly consistent with what we discussed in the first quarter, while the balance of the portfolio continued to progress. Looking ahead, our focus is on building on the enrollment progress we have made, converting more inquiries into enrollments, translating higher occupancy into continued operating leverage, and shaping the portfolio around centers and markets with the strongest long-term demand and strategic value to our clients.

As we build on this progress, our commitment to delivering the highest quality care in a safe and nurturing environment remains foundational to everything we do. Over 40 years, we have built rigorous policies, training, and oversight across our centers. We continue to invest in the people, systems, and practices that support consistent quality service delivery. We also recognize that this work is never finished. We continually learn, evaluate, and strengthen our approach. That discipline and our commitment to transparency and improvement is fundamental to the trust families and employers place in Bright Horizons.

In educational advisory, revenue of $28 million was consistent with the prior year, as continued growth in College Coach was offset by lower participant engagement in EdAssist. Demand for College Coach's advising services is underpinned by the quality and experience of our college admission and financial aid experts, who provide highly personalized guidance to navigate the complex and high-stakes college landscape. In EdAssist, our focus is on increasing engagement by strengthening the technology platform, expanding the relevance of our solutions, and making it easier for working learners to take advantage of the education benefits available to them.

Tying all this together is One Bright Horizons, our growth strategy to extend the reach and value of our service portfolio by engaging more employees and employers across the full spectrum of our solutions. At the employer level, that means building on the trust we have established through one service to expand relationships across our broader portfolio. Just as importantly, it means helping more eligible employees discover and engage with the range of care and education benefits available to them. By creating a more connected experience across our services, we can support more of their needs while delivering greater value to our employer clients. We again saw the impact of this strategy during this past quarter.

The academic medical center behind the 3 full-service centers we transitioned first started as an EdAssist and College Coach client. Separately, a leading financial services company that has long utilized Back-up Care added College Coach to support employees and their families through the college planning process. Examples like these, together with growing employee engagement across our services, demonstrate the power of our employer-sponsored model and our ability to deepen relationships and penetration at both the employer and employee level. In summary, we continue to demonstrate the strength and durability of our employer-sponsored model through the first half of 2026.

As we look ahead to the remainder of the year, we are narrowing our full-year revenue outlook to a range of $3.085 billion-$3.115 billion and raising adjusted EPS outlook to $5.05-$5.15 per share. With that, I'll turn the call over to Elizabeth to walk through the quarter in more detail and share more on our outlook.

Elizabeth Boland: Thank you, Stephen, and hello to everyone who's been able to join the call tonight. I'll begin with some overall financial highlights. Revenue for the second quarter grew 7% to $779 million, driven by continued top-line growth in both our full service and Back-up segments. Adjusted operating income increased 15% to $99 million, as adjusted operating margins expanded 95 basis points over the prior year quarter to 12.7%. Adjusted EBITDA increased 13% to $131 million, representing an adjusted EBITDA margin of 17%. On the bottom line, adjusted EPS of $1.28 increased 20%.

Taking a closer look at each of our 3 business lines, Back-up revenue grew 19% in the quarter to $194 million, driven by the strong utilization Stephen talked about across care types. Adjusted operating income of $50 million grew 23% versus the prior year as the associated operating margin expanded 80 basis points to 26%. In full service, revenue of $557 million grew 3% over the prior year quarter, driven primarily by tuition increases, growth in occupancy, and a favorable impact from foreign exchange. These benefits were partially offset by an approximately 250 basis point headwind from center closures, and to a lesser extent, to enrollment declines in our Australia operations.

We ended the quarter with 988 centers, opening 7, as Stephen mentioned, while also closing 7 lease model centers. Enrollment in centers that are open for the last year was approximately flat in the second quarter, after taking into account the roughly 100 basis points of headwind from the enrollment contraction in Australia. Occupancy increased sequentially from the first quarter and averaged in the high 60% range and was about 70% excluding Australia. With respect to the center cohorts we have discussed on prior calls, the overall mix continued to improve, driven by a significant reduction in our lowest occupied centers.

Our top performing cohort centers above 70% occupancy represent 53% of these centers in the second quarter, roughly in line with what we reported in the second quarter of 2025. More notably, our bottom cohort, that is centers below 40% occupied, declined to 5% of these centers from 10% in the prior year, reflecting both the enrollment progress and the impact of closing underperforming centers. Total full service adjusted operating income increased 10% to $44 million and represented an adjusted operating margin of 7.9%, an expansion of 50 basis points over the prior year. Tuition increases ahead of average wage growth across the portfolio and continued improvement in our U.K. operations drove the net margin expansion.

Excluding our challenged Australia operations, full service adjusted operating margin would have expanded by more than 75 basis points over the prior year. Educational advisory revenue of $28 million was consistent with the prior year quarter, and adjusted operating margin was 16%. Turning to a couple of other items on the P&L, our net interest expense of $14 million increased $3 million over the prior year and was up $2 million sequentially, due primarily to higher average borrowings as well as modestly higher average effective borrowing rates. The structural effective tax rate on adjusted net income was 28.75% in the second quarter, higher than in 2025, due primarily to losses in Australia that are not currently deductible.

Turning to the balance sheet and cash flow, we generated $95 million in cash from operations in the second quarter and made fixed asset investments of about $19 million. We also made share repurchases totaling approximately $250 million during the quarter. At quarter end, we had $164 million of cash and approximately $1.3 billion of gross debt. Our trailing net leverage ratio was 2.2x net debt to adjusted EBITDA at the end of the quarter, reflecting that share repurchase activity over the last year. Moving on to our updated full year outlook.

On the revenue side, as Stephen previewed, we are narrowing our reported revenue to a range of $3.085 billion-$3.115 billion and raising our adjusted EPS outlook to a range of $5.05 to $5.15. Looking now at each segment for the full year. In full service, we expect reported revenue to grow in the range of 2.5%-3% on enrollment gains and tuition increases, offset by approximately 200 basis points of headwind from net center closings and approximately 100 basis points of headwind from Australia. In Back-up Care, we have increased our expectations to 13%-15% revenue growth for the full year, driven by the continued expansion of use. In ed advisory, we expect to grow in the low single digits.

We are now expecting $58 million-$60 million of interest expense for the year, an adjusted effective tax rate of 28.5%, and a diluted share count of 51.5 million shares for the year. Looking now to Q3, our outlook is for total revenue of $835 million-$845 million, or growth of approximately 4%-5%. We expect full service to grow reported revenue of 50-100 basis points, including an approximate 225 basis point headwind from net center closings over the last year and 100 basis points of headwind from Australia. In Back-up Care, we expect revenue growth in the quarter of 12%-14%, and again, EdAssist to grow in the low single digits.

In terms of earnings, we expect Q3 adjusted EPS to be in the range of $1.73-$1.78 per share. With that, Felice, we are ready to go to Q&A.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Andrew Steinerman from JPMorgan. Please go ahead with your question.

Andrew Steinerman: Hi, two quick questions. Some of this is seasonal. With the strong Back-up Care growth in the quarter and into next quarter, could you just give us a sense how much summer camp usage is driving those results? Surely it's broad usage, but I'm interested in summer camp because you've had a lot of success there. Also, I know it's early and we're still in July, but as you think about the guide that you gave for the year, what are you assuming in terms of back to school enrollment on the full service side?

Stephen Kramer: Thank you for the question, Andrew. I'll start with the summer camp question. First of all, we're obviously very pleased with the 19% in growth in the quarter. That use was really across all care types. It really was reflective of strong growth in both users and a slight uptick in frequency. In terms of isolating summer camp in particular, obviously in the summer months, that is the highest. Again, for the overall year, we generally see summer camp use in sort of the 25%-30% of total use. It is still just one of the components of our network use care types.

Elizabeth Boland: Yeah. On the enrollment front, Andrew, we had seen enrollment in the first half of the year relatively stable as we had previewed at the beginning of the year, with a little bit lighter growth in the second quarter than we would expect to see as we turn over in the fall here. We have a little bit of positive growth offset by the Australia headwind. We're looking at a slightly positive ex-Australia growth, sub 1%, but still positive with Australia putting us with another 100 basis points of headwind on top of that. It's been an important cycle, of course.

We have had, as we've stabilized enrollment in some of our larger or higher enrolled centers, they see more turnover in the older age groups as we come into the fall. That backfill takes a bit of time, and we also just have the natural comparison against a very strong year-over-year in our U.K. operation. A couple of things that come into how we're growing Q2 versus Q3 and Q4, we're still looking at something that's pretty close to our original guide for the full year.

Andrew Steinerman: Okay. Thank you.

Operator: Our next question is from Manav Patnaik with Barclays. Please proceed with your question.

Ronan Kennedy: Hi, this is Ronan Kennedy on for Manav. Thank you for taking our questions. If I may, I'll start with a follow-up on Back-up. You highlighted both new logos and increasing utilization amongst recently launched clients. Are newer clients ramping faster than what you've seen in the past? If so, what's driving that behavior? Then you also continue to discuss substantial penetration opportunities within existing. What gives you confidence that the employee participation rates can continue moving higher from here?

Stephen Kramer: Yeah, thank you for the question. I'll start with the second question since, again, the vast majority of growth that we experience is within the existing client base. We are now into a multi-year demonstration of continuing to drive users and use. What I would say is that we continue to work with our client partners to provide increasing amounts of outreach so that we can ultimately continue to garner more unique users, because ultimately that is the key determinant of continuing to see the kind of growth that we have been able to achieve. Certainly in the near term, we can look at reservation volumes and gain confidence, which is what gave us the ability to increase our guide.

Ultimately, it's really down to continuing to identify and secure new users, and then a small uptick on frequency. In terms of new and ramping clients, that is obviously a much smaller component of it, given the fact that we have more than 1,000 clients that take advantage of our Back-up service. That said, they are important to the long term in this business. I would say that the maturation process of these clients actually looks quite similar to what we've experienced. It is not outsized compared to what it has been in the past, but rather just an important element. Then the final component of your question was really around what the white space looks like.

I think as we articulated in the investor presentation, we see a lot of white space as it relates to the possibility of garnering new logos, believe that will continue to be a component of our growth algorithm within Back-up Care.

Ronan Kennedy: Thank you for that. With the strong margin expansion in Back-up to 26%, well, I guess versus 25% last year, how much of that margin expansion was utilization versus mix? How should we think about what are sustainable levels of margins for Back-up Care?

Elizabeth Boland: We believe the Back-up margins are sustainable. We've been at 28%-30% as our outlook for operating margins for Back-up for a while. We would continue to expect to see that this year. With more volume even coming in the third quarter than the second quarter, the margin conversion does come down to utilization against the portion of the Back-up Care cost supports that are fixed. We would expect it to tick up in the third and fourth quarter from where we see the first half of the year and be able to sustain that 28%-30%, given the sentiment of both the mix of use and the volume conversion that we're able to have.

Ronan Kennedy: Thank you. Appreciate it.

Stephen Kramer: Thank you.

Elizabeth Boland: Welcome.

Operator: Our next question is from Jeff Meuler with Baird. Please proceed with your question.

Jeff Meuler: Thank you. I know you've had the greater than 70, less than 40 to 70 buckets for a while. Just on full service, can you just help us think through what % you characterize as high margin, maybe near full occupancy, not really growing? What % are ramping well at this point? Just of the lower utilization or those that are maybe not ramping, are in the assessment for closures bucket.

Elizabeth Boland: Appreciate the question because there is some nuance in there, Jeff. Broadly speaking, the group of centers that are operating above 70% are in that category of sustaining enrollment, not necessarily from quarter to quarter or at the time we're in right now. Those centers will be naturally cycling enrollment, particularly the older preschoolers who are graduating out to elementary school. That group is not necessarily growing much. It's sustaining enrollment, we've been really pleased to see how much sustainability they have had through the last couple of years because that group has been steady.

Between the overall aggregate price increases and the conversion of that to earnings in those centers, we're earning more even as the margin is getting back to our target of 10% or so. Those centers are really very much there. The group in the middle, the 40% to 70% cohort, there certainly are some centers in that group that are running very well. They may be anywhere from 60%-70% occupied. They may be 55%-65% occupied. They do very well at that level, they are also in that maybe not going to improve meaningfully from that level. That group is, call it, 45% or so of our overall mix.

There is still a good quarter of those centers to 25%-35% of the overall mix still have opportunity. Some are at steady state. The sub 40% occupied group, I would characterize, we're at 5% this quarter. That's an optimized time period because as we do cycle enrollment, that'll move around. Probably in that group where we have anywhere from 60-70 centers that might be candidates for deep consideration of whether they should close, we'd probably look at maybe 25-50 of those that we would have circled up as not likely to be viable over the long term and be candidates for closure beyond this year and maybe into 2028. That's how I'd characterize the overall mix.

I think the one additional consideration that I'd put out there is, of course, Australia has been underperforming, the deep dive that we are looking to do on that portfolio-

Jeff Meuler: Yeah

Elizabeth Boland: might increase that a little bit, just trying to characterize the rest of the portfolio.

Jeff Meuler: Help me with that deep dive, just how close are you, or what actions have you taken, or how close are you to taking more aggressive action in Australia?

Stephen Kramer: Yeah. What I would say is, obviously, we shared in the last call the degradation that we saw in the enrollment. Our focus at this point really is on aligning the staffing with the enrollment levels that we have, obviously trying to improve enrollment from where we are. As Elizabeth just shared, the other action that we are looking at and circling up is around closures. To make sure that we're optimizing the portfolio for the future. Ultimately, as we think about Australia, we're trying to think broadly about how to make sure that we can get that back on track in the way that we were able to accomplish in the U.K.

That's our sort of immediate action, over the intermediate term, we obviously are looking at strategic options as it relates to how we think about that particular geography broadly.

Jeff Meuler: Thank you both.

Elizabeth Boland: Thanks, Jeff.

Stephen Kramer: Thank you.

Operator: Our next question is from Jeff Silber with BMO Capital Markets. Please proceed with your question.

Jeff Silber: Thank you so much. I believe on your prior call, you gave us operating or adjusted operating margin guidance by segment. Can we just revisit that again?

Elizabeth Boland: Yeah. Operating margin, I think I just mentioned from a Back-up Care standpoint, we're looking at 28%-30% for the year. On full service, overall, we expect to be flat for the year, flat-ish, and the Australia headwind there is, as we talked about last quarter and this quarter, expected to be 50-75 basis points. We would be positive, certainly excluding that headwind. At this point, we're looking to be relatively flattish in full service, and then our ed advising would be in the call it 20% range.

Jeff Silber: Okay, great. That's really helpful. Completely different question. A number of us cover some of the higher education companies, and I know it's a different business, but many of them have been talking about changes in the way that students are searching or finding schools that they want to attend, moving from traditional search engines, going to LLMs. I'm just wondering, are you seeing that at all? If so, are you changing your marketing strategy accordingly?

Stephen Kramer: Sure. Happy to answer that. Clearly, your question is focused around the ed advisory aspect of what we do. When we think about the College Coach aspect, those are dependents of our clients' employees. They are traditional learners as opposed to adult learners. Those traditional learners really are seeking out both information through AI and that type of support. At the same time, these are very high-stakes decisions that they're making. Therefore, the expertise that our counselors provide is still an incredibly valuable aspect of their search process.

When we think about our ed advisory business, you'll note that on the College Coach side of the business, we continue to see participant growth, and that is really reflective of the fact that those employees and their dependents are highly interested in seeking expert advice from former college admissions and financial aid professionals.

Jeff Silber: Yeah, I'm sorry. I was actually thinking about your full service center business. I don't know if that's impacted at all.

Elizabeth Boland: Yeah, I'm not sure that we've seen that kind of a shift, but happy to inquire more about that.

Jeff Silber: Okay. Appreciate the color. Thanks so much.

Elizabeth Boland: Sure.

Operator: Our next question is from George Tong with Goldman Sachs. Please proceed with your question.

George Tong: Hi. Thanks. Good afternoon.

Elizabeth Boland: Hi.

George Tong: Occupancy outside of Australia reached roughly 70% in the quarter. As occupancy rates continue to recover, where would you say you are in the margin expansion journey within full service, and how much operating leverage remains available before you reach a more normalized utilization level?

Elizabeth Boland: If I'm understanding your question right, it's the sort of opportunity to get back to a 10% EBIT margin, which is where we have historically operated. We certainly see a pathway to that, both with sustaining the enrollment and the performance in our top cohort enrolled group. Just to maybe to walk through what we currently have in the headwind category of our business. Last year, we reported about 5.5% in full service. As I mentioned, we would expect it to be relatively stable with that in 2026. Looking at Australia in the round as a whole, that underperformance, the $20 million-$25 million we expect to be losing in that geography is roughly 150 basis points of headwind.

We also have a group of centers as we have closed centers, and some of them we are working to completely exit the leases and the facility costs in them and that period of time to either run off the lease or to exit is another 50 basis points or so of headwind. Just coming in, we are at about 7.5% without those two component pieces. You take the centers that are sub 70% occupied, and we have a group of them that, on the earlier question, we expect will also be candidates for closure, that are affecting the overall performance. Just gaining the enrollment in the middle cohort and getting that operating leverage.

We certainly see a path to getting back to 10% and honestly, beyond that. Step one is getting back to 10%, and then we'll be commenting later on that. It's been, I think, a process, but we are very heartened by how the top performers continue to deliver and how we've been able to move centers out of the bottom cohort into the middle cohort.

George Tong: Got it. That's very helpful. Switching to Back-up Care, growth accelerated in the quarter even against tougher comps. Can you discuss whether there were unusual tailwinds that you saw this quarter, or is there reason to believe that these growth rates are in fact sustainable?

Stephen Kramer: I think that there were no anomalies, if that's the question. I think that really the performance was down to continuing to increase the number of users and, as I said, a slight uptick in frequency. That said, Q3 is obviously the largest quarter, and so ultimately we start to moderate a little bit as compared to the Q2 in Q3 in terms of what we called for in terms of guidance. That really becomes just a very high peak, within the overall year.

Overall, to answer your question very directly, we continue to see an opportunity for us to get to sort of a 13%-15% growth for the full year, and then continue to sustain double-digit growth for many years to come.

George Tong: Got it. Very helpful. Thank you.

Stephen Kramer: Thank you.

Operator: Our next question is from Toni Kaplan with Morgan Stanley. Please proceed with your question.

Toni Kaplan: Thanks so much. I wanted to go back to the center closures topic. Sort of been in a net closures mode for a couple of years. Is there anything that when you think about the go forward of your lease consortium strategy, are there any changes that you're planning to make, in terms of thinking about where to open new centers and things like that? I know it used to be more targeted towards urban areas because of the employer concentration. Is there anything sort of different that you're thinking about now?

Stephen Kramer: Thank you for the question, Toni. What I would say is in the near term, we continue to be focused on opening new centers in collaboration and in partnership with clients. That is our first priority in the near term, is to continue to either transition the management of centers for self-operated centers and, in addition to that, open new greenfield opportunities with clients' financial support. I would say longer term, again, hearkening back to this client centricity, our lease consortium models will really be driven by where our clients and their employees live and work, and where we can garner support from our client partners in order to create additional sustainability for the model.

Again, I would say overall, very client-centric. First and foremost in the near term with client centers. Beyond that, thinking about lease consortiums that again, garner support through our client partners and their employees.

Toni Kaplan: Got it. Elizabeth, if you could help us for modeling purposes on what the FX was in the quarter for full service and if you have an updated expectation for FX for the full year, that'd be great as well.

Elizabeth Boland: That is an important point, Toni, because it was a big guy, if you will, in the second quarter. The overall contribution in full service specifically, which is where FX most affects it, was about 100 basis points of tailwind. For the full year, it will also be relatively higher, around 125 basis points. In the second half, we would expect it to taper significantly. The swing between Q2 and Q3, part of the guide of 50 to 100 basis points in full service is reflective of a swing of 125 basis points from a +100 to -25, sort of as an effect on the overall growth rate.

Toni Kaplan: Thank you.

Elizabeth Boland: You're welcome.

Operator: Once again, if you would like to ask a question, please press *1 on your telephone keypad. Our next question is from Josh Chan with UBS. Please proceed with your question.

Josh Chan: Good afternoon. Thanks for taking my question. Maybe jumping off of the prior point about the moderation in full service from Q2 to Q3. Recognizing FX is a part of that, but there's also a further moderation. I'm wondering what of the main factors is causing that. Is it a greater impact on Australia? Any other dynamics affecting that?

Elizabeth Boland: A little bit more of an effect from closures. FX is the largest sort of sequential effect. Closures in terms of gross or net closures, because the openings are about the same, but the impact of net closures is another 75 basis points or so. It was around 150 basis points in Q2. We'd expect it to be 225 net center closings in Q3. The other factor, there's a little bit of mix that goes on, but the other factor to call out is on the overall enrollment just a little bit.

Australia at the margins is probably a little bit of a factor, but also we just tapered the enrollment growth a bit overall in the core enrollment, excluding Australia. Enrollment rather than being flat in the quarter, we'd expect it to be slightly down with including the effects of Australia of 100 basis points plus.

Josh Chan: Okay. That makes a lot of sense. Thanks, Elizabeth.

Elizabeth Boland: You're welcome.

Josh Chan: Maybe on the repurchase, obviously, you took advantage of the opportunity in Q2 again. Could you talk to the willingness to buy back stock? I guess, how do you balance that between leverage and opportunistic buybacks? How do you think about that from here?

Elizabeth Boland: The business generates a lot of cash, as you know. We have leaned in pretty strong on the repurchase the first half of the year. A total, $250 million this quarter on top of two and a quarter in the first quarter. We have been active and feel like that's been a good capital allocation against the modest additional revolver that we have used to effect that. At 2.2 times net leverage, we've been much more levered than that in the past. As I say, we're replenishing cash generation in the business. We feel comfortable, certainly at these ratios. We want to be opportunistic as needed. The guidance doesn't contemplate further repurchases from now.

Our steer on the overall share count is just reflective, similar to other times as what we've done to date.

Josh Chan: Great. Thank you so much for the color. Good luck in the second half.

Elizabeth Boland: Thank you.

Stephen Kramer: Thank you.

Operator: Our next question is from Stephanie Moore with Jefferies. Please proceed with your question.

Stephanie Moore: Yes, great. Good afternoon. Thank you. I wanted to touch a little bit about maybe price and volume contribution during the quarter, if you could break that out. Sorry if I missed that. Just a clarification there. If you could also talk through the expected occupancy improvement in full service in the back half of the year, I think there's a lot of moving pieces. I just wanted to make sure I was level setting the expectations there. Thank you.

Elizabeth Boland: Sure. Overall price, our average price increase for the year has been about 4%. That's relatively consistent across all four quarters of the year and for the full year. Core enrollment, excluding Australia, our enrollment in the quarter was up roughly 100 basis points. Australia was a headwind of around 100 basis points. In terms of volume, that net volume would be relatively flat. I mentioned that the net closures was around 150 basis points. FX was an addition to the overall reported revenue of 100 basis points, a little bit of mix is the sort of overall difference to the full service growth rate. I think I might have missed one additional question that you had, Stephanie.

Stephanie Moore: No, I think you got it. I was mostly just trying to get a sense of just the occupancy trends in the back half of the year and enrollment trends.

Elizabeth Boland: Yeah.

Stephanie Moore: Yeah.

Elizabeth Boland: Yeah. The second quarter, of course, is the high water mark in terms of the seasonality, cyclicality of our full service enrollment business. We were high 60s in the quarter. We would expect that to be stepping down to mid 60s or so, and be reporting a little bit of occupancy gain compared to last year, but at the margin, still in the mid 60s plus. That's where we'd expect to end the year. It steps down as we're cycling the third quarter, just as a modest increase to the fourth quarter.

Stephanie Moore: Okay. Thank you so much.

Elizabeth Boland: You're welcome.

Stephen Kramer: Thank you. Okay, well, thanks everyone for joining the call, wishing everyone a good night.

Elizabeth Boland: Thanks, everyone.

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