BFAM Q1 Earnings Call: Enrollment Gains and Margin Expansion Amid Mixed Demand Signals

Child care and education company Bright Horizons (NYSE: BFAM) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 6.9% year on year to $665.5 million. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $2.89 billion at the midpoint. Its non-GAAP profit of $0.77 per share was 19.8% above analysts’ consensus estimates.

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StockStory’s Take

Bright Horizons began 2025 with in-line revenue growth driven primarily by continued enrollment gains in its full-service child care centers, steady expansion in backup care, and disciplined cost management. CEO Stephen Kramer cited improving center occupancy, particularly in business districts benefiting from increased return-to-office activity, and highlighted the ongoing integration of new centers for major employers as a key contributor to the quarter’s performance. The company’s margin expansion was supported by both U.S. and U.K. operations, with the latter making notable strides in enrollment and staff retention.

Looking ahead, management maintained its full-year adjusted earnings outlook and modestly raised its revenue guidance, attributing the increase largely to favorable foreign exchange movements. CFO Elizabeth Boland indicated that enrollment trends remain somewhat cautious as families navigate broader economic uncertainty, but expressed confidence in Bright Horizons’ ability to drive further growth by deepening relationships with existing clients and broadening service adoption. Management reiterated its focus on operational discipline, noting, “We remain confident in the opportunity to drive continued margin improvement through enrollment growth and maintaining price-to-cost differential and operating discipline.”

Key Insights from Management’s Remarks

Bright Horizons’ management detailed several factors behind its first-quarter results, emphasizing both operational improvements and strategic client initiatives. The company pointed to continued growth in its backup care and advisory segments, while acknowledging persistent macroeconomic uncertainty impacting new family enrollments.

• Enrollment Recovery in Key Locations: Management observed improved enrollment in centers located in business districts, correlating with increased employer return-to-office policies, though some markets showed a slower pace of new commitments.
• Margin Expansion from U.K. Operations: The U.K. business contributed meaningfully to margin gains through improved enrollment and staff retention, with a clear goal of reaching earnings break-even in 2025, despite remaining a modest headwind to overall margins.
• Backup Care Client Retention: The backup care segment maintained strong client retention at 95% and added notable new clients, reflecting ongoing employer demand for family support benefits and resilience of this service line.
• Integrated Service Strategy: The “One Bright Horizons” initiative gained traction, with multiple clients expanding their service portfolios across child care, backup care, and educational advisory, supporting management’s vision of deeper, multi-service client partnerships.
• Operational Discipline and Cost Management: Improved operating leverage—especially in the U.S. and U.K.—and measured pricing contributed to higher operating margins, while management continued to focus on retaining staff and aligning tuition rates with wage inflation.

Drivers of Future Performance

Management’s outlook for the remainder of the year centers on disciplined execution, cross-selling additional services to existing clients, and navigating a cautious demand environment for new enrollments.

• Cross-Service Adoption Focus: Management aims to drive revenue growth by encouraging existing employer clients to adopt multiple Bright Horizons services, leveraging the “One Bright Horizons” platform to create more integrated, long-term relationships.
• Enrollment Growth and Macro Sensitivity: The company expects modest enrollment gains, but acknowledged that family spending decisions remain sensitive to economic uncertainty, which could influence the pace of recovery in certain markets.
• Margin Management Amid Staffing Stability: Continued progress in staff retention and cost control—especially in international operations—should support operating margin expansion, though management flagged the need to balance tuition increases with affordability to avoid dampening demand.

Top Analyst Questions

• Andrew Steinerman (JPMorgan): Asked about the timeline for center utilization returning to pre-pandemic levels; management indicated it could take a couple more years at the current pace of enrollment growth.
• George Tong (Goldman Sachs): Probed whether current enrollment softness was structural or cyclical; management described it as cyclical, tied to macro uncertainty, not a fundamental shift in demand.
• Princy Thomas (Barclays): Inquired about margin sustainability in full-service child care; CFO Elizabeth Boland said margin gains should moderate through the year due to tougher comparisons and slightly lower enrollment growth assumptions.
• Stephanie Moore (Jefferies): Questioned Bright Horizons’ playbook for driving enrollment in a weaker macro environment; CEO Stephen Kramer stressed consistent focus on differentiating service quality and customer experience, with targeted incentives for cross-service adoption.
• Toni Kaplan (Morgan Stanley): Asked if above-trend pricing in recent years could be causing enrollment drag; management said retention among existing families remains strong, but acknowledged that some cautious families are delaying new commitments.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be closely monitoring (1) the pace of recovery in center enrollment, especially in markets lagging the broader return-to-office trend, (2) the adoption rate of additional services by existing employer clients under the One Bright Horizons strategy, and (3) the sustainability of recent margin improvements as the company navigates a more cautious, economically sensitive demand environment. Progress in U.K. operations and client retention in backup care will also serve as key indicators of execution.

Bright Horizons currently trades at a forward P/E ratio of 29.8×. Should you load up, cash out, or stay put? See for yourself in our free research report.

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