Bright Horizons Family Solutions - Earnings Call - Q4 2019

Transcript

Speaker 0

Greetings, and welcome to the Bright Horizons Family Solutions Fourth Quarter twenty nineteen Earnings Conference Call. At this time, participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

Michael Flanagan, Senior Director, Investor Relations. Please go ahead, sir.

Speaker 1

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 brighthorizons.com. 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 financial results to differ materially and are described in detail in our 2018 Form 10 ks. 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. We also refer today to non GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available under the IR section of our website. Stephen will now take us through the review and update on the business.

Speaker 2

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 have 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 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 nine percent two $521,000,000 and adjusted EPS increased 12% to 1.01 We added seven full service centers this past quarter, programs for Lehigh University, two international lease models and a strategic acquisition on the West Coast. We also continue to expand our backup 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 eleven fifty employer partners, the cross selling opportunity that exists remains significant. Tracking our solid top line 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 backup 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 enhance quality of client experience. Turning to 2020, we continue to focus on our four 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 across functions, 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 focus 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 backup 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 and 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 twenty nineteen. Strategic additions like this one enable us to continue to allocate capital with highly attractive returns while expanding our backup 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 and A.

Speaker 3

Thank you, Stephen, and hello everybody. Thanks for joining us today. Once again recapping the headlines for the quarter, overall revenue was up $42,000,000 or 9 percent in the quarter. The 6.1% growth in full service center revenue or $24,000,000 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 backup and 13% in Ed advising services in the quarter.

In Q4, gross profit increased $11,000,000 to just over $131,000,000 or 25.2% of revenue, and adjusted operating income increased to $67,400,000 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 pre opening and ramping losses in our new lease model centers. With a larger cohort opening in 2019, there were 17 in total compared to 12 in 2018, we incurred higher total losses this past quarter than in the prior period. The Backup and Net Advisory segments both generated solid operating margins in the quarter, approximately 3129% respectively, on their continued strong utilization levels and on continued scale in the operations, which brought efficiency of service delivery. Interest expense of $11,000,000 in 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 $500,000,000 of our term loans fixed with an interest rate swap. We 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 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, cash flow was $330,000,000 up $35,000,000 over 2018.

In terms of deploying that 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 $100,000,000 plus that we spent in 2019 on new centers and acquisitions, as well as the $50,000,000 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 twelvethirty onenineteen, we operated ten eighty four centers with the capacity to serve over 120,000 children.

Adding to the guidance headlines that Stephen touched on earlier, we continue to project top line growth for 2020 in the range of 8% to 10%, including revenue gains in our backup division in the range of 12% to 13% and top line growth in our advisory services in the range of 15% to 20%. In our full service segment, we're projecting top line 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 top line 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 and 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.

Top line 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 $32,000,000 to 33,000,000 depreciation in the range of 80,000,000 to $84,000,000 and stock compensation of 20,000,000 to $22,000,000 Based on our outstanding borrowings and estimates of interest rates for the year, we project that interest expense will approximate 40,000,000 to $42,000,000 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 $59,000,000 for the year. We estimate that we'll generate approximately $350,000,000 to $375,000,000 of cash flow from operations and have $60,000,000 of maintenance and overhead capital, yielding approximately $300,000,000 of free cash flow to invest in the ongoing growth of the business.

We do expect to invest 50,000,000 to $55,000,000 in new center capital, specifically for centers that we have opening in 2020 and in early twenty twenty one. The combination of all these factors lead to our projection of adjusted net income of $242,000,000 to $246,000,000 and adjusted EPS growth in the low double digits to a range of $4.11 to $4.18 Looking specifically to Q1 of twenty twenty, we're projecting approximately 7% to 8% top line growth and adjusted net income in the range of 54,000,000 to $56,000,000 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 and A.

Speaker 0

Thank you. At this time, we'll be conducting a question and answer session. Your first question comes from the line of Manav Patnaik Please proceed with your question.

Speaker 4

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 in the last call. I guess you did talk a little bit about timing. More just did you open more centers towards the end of the year?

Or maybe you could just help flesh out exactly the moving pieces were there?

Speaker 3

Yes. I think primarily looking at some of the usual utilization variability that we see in the backup and net 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's 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.

Speaker 4

Got it. Thanks. And then on the M and A front, it sounds like maybe there are some more opportunities kind of outside of the core center based 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 and A side to build out kind of some of the Ed advisory and backup offering?

Speaker 2

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 backup 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.

Speaker 4

Got it. Thank you.

Speaker 3

Thanks, Ryan.

Speaker 0

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

Speaker 5

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?

Speaker 3

Yeah. 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's 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 top line 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 perform for the full year. And so the quarter to quarter noise is really just that is how we look at it.

Speaker 5

Right. And Elizabeth, the second part of the question was in how do you feel like advisory margins will do in 2020? Are they going to be helpful to that overall 50 to 100 basis point goal you laid out?

Speaker 3

Oh, yeah, I thought that I was alluding to that with how we think that it can continue perform. So at a growth rate that's in the 15% to 20% range and driving somewhere between 2530% operating margins, it will contribute to some operating margin leverage we expect this year, 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.

Speaker 2

Perfect. Thank you.

Speaker 6

You're welcome.

Speaker 5

Thanks, Andrew.

Speaker 0

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

Speaker 7

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 childcare 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.

Speaker 2

Sure. So first, what I would observe is that from our earliest days over thirty years ago, we've really been creating the market around employer sponsored childcare, right? So it's not like there is a large installed base of childcare centers associated with employers aside from ones that we have really from a missionary standpoint developed. We estimate that there is somewhere between 3,000 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 its 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 childcare 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.

Speaker 7

Great. And then just one more and I'll turn it over. Just a question on your backup 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?

Speaker 2

Sure. Happy to. So look, we are by far the market leader within backup care here in The United States and that is also true in The U. K. Both countries we operate a significant backup 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 $300,000,000 and the next largest being sort of between 10,000,000 and $20,000,000 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.

Speaker 8

Great. Thank you. Welcome.

Speaker 0

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

Speaker 9

Hey, hi everyone. Good afternoon.

Speaker 0

Hello.

Speaker 9

First question I guess, you know, you've occasionally in the past given us the revenue

Speaker 3

for

Speaker 9

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?

Speaker 3

Let me just pull that up, Gary. Don't have it right here,

Speaker 4

And, but let me

Speaker 0

just pull it

Speaker 9

you know, 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 the 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.

Speaker 3

Yeah, Gary, let me just maybe lead off and Steven 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. 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 than that 2,500,000 average view because of where they're 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, you know, 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 we'll have waves of these like we remarked about it in the prepared comments, but 17 centers in some of these locations, do generate a substantial pre opening loss. I'd say that might be difference that we see. Some centers have a higher pre opening and ramp in loss than a typical prototype because of the rents that they command. That may be a bigger drag, 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 million of an effect from that in this fourth quarter. But Steven, the strategy?

Speaker 2

Yeah. 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 this 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.

Speaker 3

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 $175,000,000 or so for these 100 centers. They are positive 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 an overall cohort.

Speaker 9

Great. That's a helpful update. I appreciate that. And I guess just one last on the full service center business. This has been the majority of the growth in units outside of a couple of years ago when there are a couple of more sizable acquisitions.

Is that sort of by design as you like this model and you need the capacity from it to deliver on the backup 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.

Speaker 2

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 chakra 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 of the fact that they are really important element of our capacity for backup 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 a 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 childcare centers that are good acquisition targets for us.

Speaker 3

Yeah. And just one other maybe follow on comment on the sort of non lease consortium centers. If we look at the three factors of new center adds in a year, acquisitions, client centers, and lease consortium, there's a little bit of noise year to year, but we're 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 just to put more of a quantitative point on that.

Speaker 9

Okay. All right. Yeah, that's good. And then I'll sneak one last one in if I can, 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 the 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.

Speaker 2

Yep. Yeah. 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, etcetera, 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.

Speaker 9

Thanks. I appreciate all the color.

Speaker 2

Yes. Thank you.

Speaker 0

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

Speaker 10

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?

Speaker 2

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.

Speaker 10

Great. That's helpful. One

Speaker 9

more.

Speaker 10

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?

Speaker 3

You know, I think that the trends in enrollment are 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.

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. You know, 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, etcetera.

And it's really a matter of staying on top of the of the the top of the funnel, if you will, getting prospects and potential children in for backfilling as they age through.

Speaker 10

Great. That's helpful. Thank you.

Speaker 0

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

Speaker 6

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.

Speaker 2

Sure. Happy to. So look, had mentioned earlier in the call that the three 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 uptake 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 backup 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 backgrounds and behaviors to ensure that we are doing more personalized outreach to them to stimulate use.

And so ultimately 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.

Speaker 6

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?

Speaker 2

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 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.

Speaker 6

Thank you.

Speaker 3

Thanks, Tuan.

Speaker 0

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

Speaker 8

Yeah. 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 for lease consortium since you're talking about the importance 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?

Speaker 3

Yes. So I'll give you the numbers on the first, Jeff, and then Steven 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.

Speaker 2

Yeah. And in terms of the employer 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 one of three 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 wait lists 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 backup care strategy. And so we also see employer support in the form of backup care that's being placed into those centers.

Speaker 8

Okay. And then just more generally on the Backup 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 twenty eighteen? Or are you starting to get some pushback as you've driven up utilization and therefore expense for your employer partners? Just recognize on a multiyear basis this is really good just trying to compare it to 2019. Thanks.

Speaker 2

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 backup 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 backup care either in the form of taking it on as a new benefit and or, really encouraging, their employees to utilize the benefit.

Speaker 8

Got it. Thank you, everyone.

Speaker 1

Thank you.

Speaker 0

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

Speaker 4

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, in Europe, but maybe more broadly.

Speaker 2

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. 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.

Speaker 3

Take care, everyone. Thank you.

Speaker 0

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