Greetings, and welcome to the Bright Horizons Family Solutions Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Senior Director of Investor Relations. Thank you, Michael. You may begin. Thank you, Paul, and hello to everyone on the call. With me here is Stephen Kramer, our Chief Executive Officer, and Elizabeth Boland, our Chief Financial Officer. I'll turn the call over to Stephen after covering a few administrative matters. Today's call is being webcast and recorded and will be available under the Investor Relations section of our website, brighthorizons.com. As a reminder to participants, any forward-looking statements made on this call, including those regarding future business and financial performance, including the impact of acquisitions and COVID-19 on our operations, 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 are described in detail in our 2021 Form 10-K and other SEC filings. Any forward-looking statements speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statements. We also refer today 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 of the business. Thanks, Mike. Hello to everyone on the call, and thank you for joining us this evening. I hope that you and your families are doing well. I'll start tonight with a review of our Q3 results and provide an update on the business and outlook for the year. Elizabeth will follow with a more detailed review of the numbers before we open it up for your questions. First, to recap the headline numbers for the Q3. Revenue in the quarter increased 17% to $540 million, with adjusted net income of $38 million and adjusted EPS of $0.66. In our full-service childcare segment, revenue increased 14% in the Q3 to $381 million. We added 4 organic centers, including one for our new client, Kwik Trip, and we completed the acquisition of 75 centers in Australia. We also reopened 4 of our temporarily closed centers in Q3, ending the quarter with 99% of our 1,081 centers open. Across our portfolio of like-for-like centers, we saw mid-single digit year-over-year enrollment growth in Q3. In the US, our centers located in the largest metro areas continued to progress their enrollment recovery, with New York City, San Francisco, and the Bay Area, Los Angeles, and Atlanta showing notably strong year-over-year enrollment gains. Our higher ed, healthcare, and industrial clients that represent approximately 60% of our client center portfolio continue to show the highest occupancy levels, while our tech and consumer client centers experienced the fastest enrollment growth over the prior year. In terms of age mix, infant and toddler enrollment grew 8% over the prior year, more than double the rate of our preschool, despite the more acute staffing challenges in these younger age classrooms due to tighter teacher-to-child ratios. While staffing continues to constrain enrollment in most geographies, we saw incremental progress on the retention and recruiting from this past quarter. Our recent investments in teacher compensation have had an impact on retention, and we continue to see greater interest from job seekers. Taken together, this has resulted in continued improvement in net hiring. Importantly, the gains made in overall staffing levels is enabling center directors to spend less time covering classroom hours and more time on traditional leadership activities, including engaging with prospective families through tours and visits. These marketing activities, which had been severely curtailed during the pandemic, are helping us rebuild the enrollment pipeline to drive all classrooms back toward pre-pandemic occupancy levels. Outside the US, enrollment trends were mixed. In the UK and the Netherlands, growth was muted as labor market challenges continued to restrict our ability to serve all of the enrollment demand that we have. We have several initiatives underway to drive recruitment in the face of a market that remains very challenging in the availability of qualified classroom staff. In addition to stalling of our enrollment growth, the other short-term impact of this is higher labor costs, given a greater reliance on agency staff to augment directly employed teachers, which comes at a cost premium. In Australia, where we closed on the Only About Children acquisition on July first, we are pleased with this initial quarter's performance. Specifically, enrollment was in line with our expectations, even while Australian operations continue to experience similar labor dynamics that we see across our global center operations. Let me now turn to Back-Up Care, which delivered exceptional results this quarter. Revenue increased 30% over the prior year to $129 million, outpacing expectations on strong use in the Q3. We also continue to see good new client success with Q3 launches for Hard Rock International, Lear Corporation, Lucid Group, and Premier Health Partners, to name a few. As we spoke about last quarter, we were encouraged to see record use in June, with that momentum continuing throughout the Q3. we saw use across all of our care types, resulting in our highest revenue quarter in our Back-Up segment history. Of particular note was the contribution of Steve & Kate's Camp, an acquisition that we made in 2021. Under our ownership, we expanded their footprint, enabling us to increase our available backup capacity and serve a growing number of families with school-age children. Additionally, as part of our broader strategy to expand the utility of backup care to a broader set of eligible client employees, we recently rolled out pet care as an additional use case. This follows a successful pilot with a third-party service provider over the last several months. Along with virtual tutoring and expanded school-age camp programs, this is the latest example of our product innovation designed to drive greater adoption and frequency of use. Moving on to our education advisory business, which delivered revenue growth of 14% to $31 million. We added several new clients in the quarter, including launches with AmerisourceBergen, Johns Hopkins, and VMware. We continue to see solid use levels with particularly notable participant growth at EdAssist in the quarter. I continue to be excited about our opportunity in workforce education as this remains an area of focus for employers looking to differentiate their employee value proposition and upskill employees into hard-to-fill roles. Let me now briefly touch on our consolidated outlook for the rest of 2022. We remain on track to achieve $2 billion in revenue, and we are narrowing our adjusted EPS to a range of $2.60 to 2.65 per share, or growth of 30% to 33% for the full year. Before wrapping up, I want to take this opportunity to reflect on the signature employee recognition events that have been occurring across Bright Horizons over the last couple of months. This year, we had nearly 25,000 award nominations from clients, families, and colleagues. After 2 years of only virtual celebrations, it was great to celebrate with colleagues here in Newton 2 weeks ago. My heartfelt appreciation goes out to all of our employees who work tirelessly each day to make a difference in the lives of children, families, learners, and workplaces. In closing, we are encouraged by the continued progress we are seeing across our business. We have met the challenges of the last 2+ years head-on by making investments in teachers' compensation and benefits, expanding recruiting work streams, further investing in technology to enable seamless client and end user experiences, and developing and launching new care types to reach a broader range of clients and employees whose need for childcare and family support have never been greater. I continue to believe that the strength of our client relationships and unique employer-sponsored business model, coupled with the acute need for our quality services, position us well to execute against our short and long-term objectives, all while remaining steadfast in our focus on delivering the highest quality care for education for children, families, and clients. With that, I'll turn the call over to Elizabeth, who will review the numbers in more detail, and I will be back to you during Q&A. Thanks, Stephen. Hello, everybody, and thanks for joining us tonight. I'll recap the quarter results and then provide some updated thoughts on the remainder of the year as well. For the Q3, overall revenue increased 17% to $540 million. Adjusted operating income held steady at $46 million or 8% of revenue, while adjusted EBITDA of $81 million or 15% of revenue increased 2% over the prior year. In the Q3, we added 79 new centers, reopened 4 centers that had been temporarily closed, and permanently closed 12 centers, thereby ending the quarter with 1,081 centers. Our full-service revenue increased $47 million to $381 million in Q3 or 14% over the prior year. Revenue gains were driven by increased enrollment and pricing, which contributed approximately 10% to revenue expansion, as well as by the addition of Only About Children, which we acquired effective July first, and which contributed $37 million in the quarter. Enrollment in our centers open for more than 1 year increased mid-single digits, with 5% enrollment growth in the US and our European operations were narrowly positive, less than 1%, reflecting the effects of having to limit enrollment due to constrained availability of staff. Our occupancy levels averaged 55% to 60% in Q3, as the typical preschool enrollment seasonality over the summer months results in lower occupancy sequentially from Q2 to Q3. Two notable factors were 7% headwinds to this growth. First, the strengthening dollar resulted in a $19 million year-over-year headwind in Q3. Second, ARPA support for childcare services, support we received on clients' behalf, reduced client subsidy revenue by $10 million, which was an incremental $6 million compared to the prior year. Adjusted operating income for the full service segment contracted $13 million to a loss of $3 million in Q3. The Q3 is historically our weakest quarter from an operating income standpoint, mainly driven by the preschool enrollment seasonality over the summer months. As we've seen throughout the year, ARPA government funding directed to the childcare sector continues to provide support to the inefficient cost structure during this ramping period. We received $14 million of this support in Q3, up slightly from the $12 million we received last year. Looking at the components of operating income, in this most recent quarter, it was impacted by higher labor costs, including investments in teacher compensation, which were effective mid-quarter, and outside spend on agency staffing internationally. In addition, as center directors are covering fewer staff vacancies, as has been the case over the last 2 years, they have been able to pivot back to leading center operations and enrollment initiatives. This is a key driver to rebuilding the enrollment pipeline and converting new enrollments for the future. Back-up care revenue growth increased 30% in the Q3, with total revenue of $129 million. As Stephen mentioned, we're particularly pleased with the strength of use growth through the quarter and the resulting operating performance, which delivered $40 million of operating income or 31% of revenue in the quarter. Our educational advising segment delivered growth of 14% on contributions from new client launches, the expanded use in EdAssist, College Coach admissions and financing advising, and in our Sittercity marketplace. As we have spoken about in the past, education advisory is at an earlier growth stage, and the associated innovation periodically requires investments to execute against a growing and evolving market opportunity. This can result in variability in the operating performance quarter- to- quarter as the businesses invest and grow and scale. Illustrating this, while additional investments in technology and customer acquisition within these businesses dampened operating profit earlier this year, this most recent quarter reflects solid operating profit growth and margins of 27%. Turning now to a few other earnings factors. Reported interest expense was $12 million in Q3, including one and a half million related to the accreting interest on the $106 million deferred payment for Only About Children, which is payable at the end of 2023. Excluding this amount, which is added back in the non-GAAP adjustments, we expect interest to tick up to around $12 million+ in Q4, given the current rate environment. The structural tax rate on adjusted net income has also increased to 27% for 2022, compared to 22% in Q3 of 2021, on increasing taxable income and lower tax benefits from equity activity under ASU 2016-09. Turning to the balance sheet and cash flow. Through September, we generated $131 million in cash from operations, made capital investments of $251 million, including the $206 million for the acquisition of Only About Children. Executed share repurchases totaling $183 million. We ended the quarter at 3.5x net debt to EBITDA, with 32 million in cash and debt of $1.1 billion. Moving on to our outlook for the rest of 2022. Our updated guidance reflects the current operating trends and performance and includes a more significant foreign exchange headwind, higher interest expense, and higher tax rate expectations than previously estimated, as well as the continued inflationary pressures that we've been seeing with labor, energy, and food costs. In terms of top line, we expect 2022 revenue of $2 billion, which includes approximately $60 million year-over-year headwind from foreign exchange. This is approximately $15 million higher than we had previously estimated. At a segment level, we are expecting Full Service to grow roughly 15%, Back-Up Care to grow in the range of 15% to 18%, and Ed Advisory to increase between 8% to 12%. In terms of earnings, this will translate into adjusted EPS in the range of $2.60 to 2.65 for the full year 2022. This narrower range includes our updated estimates of the higher tax rate that I mentioned, 27%. With that, Paul, we are ready to go to Q&A. Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that 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. Thank you. Our first question comes from George Tong with Goldman Sachs. Please proceed with your questions. Hi. Thanks. Good afternoon. Based on your year-to-date revenue performance, and your outlook for $2 billion in revenues in 2022, it would appear that you're guiding to Q4 revenue being slightly down from Q3, down around 5% to 6%. Usually, Q4 revenue is up from Q3. Can you confirm if that's the case? If so, besides FX headwinds, are there any other factors that may cause Q4 revenues to be lower than Q3? The foreign exchange is the main change I think that you're seeing, George, in Q4. Sequentially, we do have a backup in its high watermark in Q3, so there's a little bit of a, you know, pullback that we would see in backup in the 15% to 18% range that we've provided there. Those are really the only factors. I don't know that it's a downgrade. In our view, it's really same range that we had provided with the update to FX. Okay. Got it. That's helpful. Secondly, could you tell us how much in government subsidies you recognized both on the revenue side and on the cost side, and what the outlook is from here on out? Yes. I think I commented on that in the P&L centers. We had $14 million coming through that was a cost offset. In our cost-plus type client centers where we have an offset to the revenue, that was around $10 million. That's again because it reduces the cost in a client center. That reduces the amount of subsidy that a client needs to pay us. It has that effect of it not really accruing to us. It accrues to the benefit of a client. We think of the P&L impact is $14 million and so that's the P&L effect. For the rest of the year, we would be expecting that to correlate that $14 million that we saw this quarter to perhaps another $5 to 10 million in for the rest of the year. From a client standpoint, it would be, you know, it's probably $4 to 5 million or so that may offset client revenue, but similar, you know, similar proportion to what we saw in Q3. Got it. Very helpful. Thank you. Thank you. Thanks, George. Thank you. Our next question is from Andrew Steinerman with JP Morgan. Please go ahead, Hi, it's Andrew. Could you go over, in the Q3, what the organic constant currency revenue growth post-closings were? Also on a year-over-year basis, could you let us know what's implied in the Q4, again, on organic constant currency post-closing basis? Well, let me go back. I mentioned how much revenue contribution there was from Only About Children, Andrew. That was around $37 million, and we had another $3 million or so from other smaller tuck-in acquisitions. A total of $40 million of the growth was inorganic. The remainder constant currency, I think we'd have to. Mike may be able to do the calculation here quickly, but I don't know if that's. Yeah, no. You know, FX was $19 million, both in full service, around 6%. You know, the ARPA, the client ARPA that we received, the ARPA that we see on behalf of clients was another kind of 300 basis points or so. You know, more organic constant currency within full service was, you know, around 10% growth year-on-year. Did you say 10? I didn't hear you. 10. Yeah, full service grew about 10% constant currency organic. Okay. What's implied in the Q4 in terms of organic constant currency, again, on a post-closing basis? We have about, you know, another $20 million + or so of FX headwind year-on-year. You know, Only About Children. Similar performance. Similar performance in the Q4. Another, Elizabeth said, you know, $4 to 5 million of ARPA that we would We can tease that out, Andrew, but it's probably close to that 8% to 10%. Okay. I appreciate it. Thank you very much. Thank you. Our next question comes from Manav Patnaik with Barclays. Please proceed with your question. Thank you. Stephen, you know, you mentioned you gave a lot of different, I think, statistics around, you know, infant and toddler growing with the trend, twice preschool, et cetera. I was hoping you could just maybe on a high level, just maybe help appreciate what the, you know, kind of quarterly improvements you're seeing in, and how that ties in with, you know, what you're hearing from your clients, in terms of, you know, what the return to office cadence looks like that should help you guys or not. Manav, do you mind just repeating the question? You're a little bit muffled. Was that about- Yeah, sorry. What client just mentioned? Yeah, just what the client. You gave, you know, a bunch of different carve-outs on infant growth and preschool growth and, you know, without having a base for it, I was just hoping you could filter it out for us in terms of, you know, what you're hearing, really hearing from your clients in terms of the quarterly cadence of occupancy. Well, maybe just I'll start here, Manav. Just on the, you know, you talked about infant and preschool. You know, we saw different performance within those 2 segments within the Q3. The infant and toddlers, you know, grew in the, you know, high single digit range, year-on-year enrollment there, where preschool was in the low single digit range. We saw, you know, better growth in that cohort, which has, you know, been more staff constrained, you know, more recently in the last, you know, year or so, given the tighter, you know, teacher-to-child ratios within those classrooms. I think we were encouraged by that, and that, you know, should bode well as we think about building that pipeline of enrollment, particularly that will feed into these older classrooms over the next, you know, 6, 12, 18, 24 months. That's what, you know, some of the different performance we saw within those, you know, 2 age groups. you know, the question was about clients, and client sentiment, Manav, which I believe was the second part of your question. Yeah We continue to have really positive sentiment from our existing client base around the centers and the importance of those centers to their employees and specifically to some of their return-to-office plans. In addition to that, certainly we have seen a very strong pipeline as it relates to you know prospective clients being interested in investing in childcare, very specifically looking at you know new centers as well as client or prospective clients who may self-operate their own centers in the form of healthcare or higher ed, who have historically many of them have self-operated being interested in the potential of you know transitioning those centers of management. I think in all of those cases, we are very well positioned to continue to partner with clients on this really important topic to them and to their employees. Got it. Elizabeth, could you just help us with, you know, how we should think about the margins in the Q4, especially for full service and the other one seeing, you know, perhaps easier? Yeah. I mean, the performance with full service this quarter was, as I talked about, constrained by a number of the labor impacts. We would expect those to be continuing in the Q4 to some degree. That full service segment performance should be close to breakeven, you know, around that range and perhaps, you know, plus minus, but close to that similar, hopefully a bit improved. That's around where we are this quarter. We would expect that to be similar. A little bit of uptick in enrollment through the rest of the year, but modest. Backup performance, as you might know from the history of the way that backup performs sequentially or just overall for the year, we have a high watermark in terms of revenue and had solid margins this quarter. Our long-term view on backup would be 25% to 30% operating margins. In Q4 it often is a bit higher. Given the way that utilization gets consumed, people have banks of use that they can use it or lose it. There tends to be, you know, some opportunity there with our clients. We would look to margins to be closer to, you know, 35%, maybe as high as 40% in Q4. Then the advising business is, you know, fairly steady. As we've said, 25% to 30% is where we delivered this quarter. You know, could be towards the higher end of that, in Q4 as well. Thank you. Thank you. Our next question is from Jeff Silber with BMO Capital Markets. Please proceed with your question. Thanks so much. I just wanna confirm something. Did you say that Q3 full-service center utilization was 55% to 60%? What would be implied for that specific metric in the guidance for fourth? Yes, I did. The overall average is 55% to 60%. As we sort of came through the seasonality, we would expect it to be, you know, lifting up a couple of percentage points on average for the rest of the year. And so that's, you know, as I say, a little bit of uptick now that we're through the fall cycling and re-enrollment. But the bigger lift would be early in 2023 as we get into that more of the high-water markets, Q1, Q2. Okay, that's helpful. I know you go through your center footprint and you continuously cull the number of centers. I think you said it was 12 this past quarter. You know, are there certain geographies where maybe some centers are the utilization is so low that it might pay to be a little bit more aggressive in either closing or consolidating? Is that something you might be considering? Well, I mean, it's an important question, Jeff, because we have obviously over the last couple of years in as COVID took hold and we had to take a very hard look at the portfolio and where we were seeing demand coming back as the centers reopened. We do have, you know, in terms of trying to stratify, if you will, how the portfolio is operating, we have some very high performers. You know, in fact, 25% of the portfolio is operating. I think we had talked about last time, just maybe to clarify that, we talked last time about our average range was 55% to 65% enrolled. We noted that about half of the portfolio was above that 65% threshold. Just setting that previous commentary to one side for a second. You know, we have a target enrollment level that we consider mature centers to be aiming for, 70% to 80% has been where we operated and that's where we are targeting to get back to, if you will, from a post-COVID recovery. If we look at that 70% to 80% range, we actually have 25% of our portfolio operating in the Q3. They're operating at around 80%. We have good, you know, really strong performers. Sightlines on, you know, a quarter of the portfolio is very well-performing, not all the way back in terms of a margin delivery. The margin as a percentage of revenue, even though the usage is back, the enrollment is strong, and we have 1 more cycle, probably of price to cost ratio to get back to our pre-COVID margin there, but very close on that piece. The underperformers, which is your question about 20%, so 25% is above, but 20% are actually very underperforming, operating at less than 40% occupancy. Those are the ones that would be certainly on a strong watchlist to be sure that these efforts that we have that we are persisting with because we see some positive signs of enrollment or some staffing success driving enrollment. Those would be some that may be candidates for consolidation, closure potentially in the future. We are still working to enroll in those centers because we believe in the locations broadly for that group of, you know, roughly 150 centers that are in that, you know, more significantly underperforming group. With those, we see great opportunity. As you say, we need to be disciplined as we always have been to potentially consolidate or close if necessary in the future. I think the only other. Okay. Sorry, Jeff. The only other fine point I'd put on that is, you know, we have centers in that third grouping, right, that are underperforming, that are in the same geographies as ones that are in the middle group and in the top group. That gives us the confidence that, you know, again, over time, as we continue to grow our staffing levels and continue to enroll, that there is sightline. To answer your question very directly, we don't have a specific geography that we believe ultimately we are going to sort of en masse close out. Instead, we look, as we always do, center by center. The nice thing is that we have good sightline in each of our major geographies to seeing performance, as Elizabeth said, that is in that top performing category. Okay. Appreciate the color. Thank you. Thanks. Thank you. Our next question is from Toni Kaplan with Morgan Stanley. Please proceed with your question. Thanks so much. Wanted to ask another question about the government subsidies. I believe a number of the large programs liquidate in 2023. Just wanted- Mm-hmm. To help understand the expectations of what this means for 2023 year-over-year and maybe what a normal year for government subsidies are like maybe pre-COVID. Thanks. Sure. Thanks, Toni. Just to recap where we are, this year, we are expecting essentially a positive income statement effect, if you will, of around $50 to 60 million for government funding. It's primarily ARPA funding that we are now in the midst of receiving. That ARPA funding, as you suggested, is sunsetting in September of 2023, based on the current status of the regulation. States still have money to distribute, quite considerable funds to distribute. Based on our sightlines on what we, you know, where our footprint is and where we have applied for support there, we expect that 2023 could be half that, and to be TBD on whether that is better, but it's up to the states to decide. Certainly we are looking ahead to a reduction in the amount of support that we've been able to receive this year, looking ahead to 2023. Prior to COVID, we have a very small footprint of families who are receiving support through various government programs. While it may be half of a percent or 1% of our revenue in a pre-COVID environment that we had such support in the US Of course, in our international operations, they are national programs, and so families access the support for the 3 to 5 year olds in the UK and for all families in the Netherlands and Australia. Those support systems are just eligible for working adults and working parents. Those, in terms of their support factor, it's really built into the tuition structure. Terrific. Just as a follow-up, you know, I know you mentioned the utilization, you know, 55% to 60%. I think previously it was 55% to 65%. Is it the backfill issue that is really driving this down? Is it the staffing issues that have, you know, been consistently, you know, like leading to an inability to open more classrooms? Like, I guess what's sort of the main drivers of the sort of decrease? Yeah. It's actually a seasonal change. The sequential decline is quite consistent with where we've seen there's growth over last year. A year-over-year increase. The sequential change from Q2 to Q3 is based on the preschooler cycling out into elementary school. That's why we cited the gain in enrollment is higher in our infants and toddler groups and a little bit lower in the preschool group because that's a net, you know, net gain. Preschoolers is about half, you know, 3% to 4%, whereas infants and toddler growth is more like 7%, 8%. Averaging out to around that mid-single digits. The change from 55-65 on average is simply that sequential seasonality and it's not weakness per se from staffing. I think our staffing challenges are constraining the growth from being more than that. That's where we have been talking about our investments in the wage construct, benefits construct in order to attract and staff and really take advantage of the demand that we have to move that group of centers that wasn't in the strongest performing group that I mentioned that is at 80% enrolled, or the weaker performing group that's under 40% enrolled. To get that 40% to 70% group, if you will, up to its target, that's where we have a real opportunity. Super. Very helpful. Thanks. Thanks. As a reminder, 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. Our next question comes from Faiza Alwy with Deutsche Bank. Please proceed with your question. Yes. Hi. Good evening. I was wondering if you could maybe indulge us a little bit in terms of, you know, how we should be thinking about 2023. Obviously, it's early and, you know, you're probably in the middle of your planning process. How are you approaching 2023? What are some of the things that we should keep in mind as it relates to enrollment, pricing, you know, wages, staffing, sort of anything you'd like to address would be very helpful. Sure. I'm happy to start, and Stephen can weigh in, as well. As we look ahead to 2023, you're right, we are in the throes of our planning process for that, and we will, of course, have more specific information to provide when we talk to you all next. As we look at the events closing out 2022, we have been making progress, as we said, on the enrollment front. We've invested in our recruiting efforts, our, you know, teacher attraction, retention, marketing. We're investing in wages, et cetera. We would expect pricing increases in our full service business, certainly to see pricing increases above our historical average. Certainly, we haven't finalized this, but certainly would be looking to ranges in the, at least in the mid to higher single digits, so 5% to 7%, knowing that we need to remain competitive and we're in a marketplace that we are certainly aiming to get enrollment back as well as maintain the pricing that we believe appropriate for the service we're delivering. Pricing is around that. We would expect wage inflation to be ameliorating some, maybe reverting to a more typical range of around 3% to 4%, although our wage costs will be higher than that because we did make a substantial investment in compensation this summer and fall. The knock-on effect of that would be that the labor costs will likely be in the high single digits to 8% to 10% likely overall because of that knock-on effect coupled with a more modest wage inflation. Other inflationary costs are coming through things like energy and some other consumer goods that we have, although those are smaller portions of our overall cost structure. From our backup business standpoint, this year, we are looking at growth in the mid to higher double digits, 15% to 18%. That has been a very strong year. We're coming off of the COVID lapping year effect. We have good, strong client accounts that we can continue to build on. We would expect that to grow in the double digits, but probably more like low to mid single digits. That again, we will refine as the year goes on. That's what we're looking at probably from the backup business standpoint. That's probably the array of just broad brush metrics of how we're looking at next year. Any thoughts on sort of client picture, Stephen? Yeah. Absolutely. Thank you. I think that, you know, as we are heading into the final parts of this year moving into next, we continue to feel really good about our pipeline from a client perspective. That's both for new centers as well as for back-up and Ed Advisory. I think that the core services that we are offering are very much in the interest of employers as they continue to see stressors as it relates to their own workforce and their own return to office plans. I would say that from a reception on our existing client base, you know, what I would say is that, especially on the back-up side of our business, you know, use cases, new use cases are being adopted really well. When we think about the virtual tutoring getting implemented at, call it 2/3 of our clients, pet care already being adopted by a good minority of the clients, I think that what we're showing is our ability to, through both centers, back-up care, and through Ed Advisory, to continue to extend across a broader set of life stages and career stages for our employees. Then finally, we continue to do research among our parents that are users of our centers and continue to hear about the importance of health and safety as well as the importance to continuing to focus on socialization and education, given what disruption has occurred through the pandemic. Overall, feel really good going into 2023 as it relates to those who we serve. Thank you. That's very helpful. I guess just follow-up question as it relates to full service. Is it fair to say that from here, the incremental enrollment is more gonna come more from, you know, filling the staffing gap, as opposed to, as opposed to, you know, a different sort of more return to work and, you know, less of a hybrid arrangement and things like that? Is that a fair way to think about it? I think that it is safe to say that at this point in the cycle, staffing is a real constraint in our ability to serve you know increasing numbers of families. It's fair to say that you know in more than half of our centers we have demand that outstrips our ability to actually service those interested families. I would say in addition to that you know we continue to as Elizabeth alluded to earlier work really hard to improve our staff retention rates through things like our wage increases and other benefits enhancements. At the same time get really specific about improving our top of funnel for new recruits and then ultimately streamline the process to hire. I would say that, yes, staffing is the larger part of the impediment in terms of our ability to grow enrollment, and at the same time, it is and continues to be a major area of focus for us, where we believe we continue to make strides. Great. Thank you. If I may just ask one more, quickly on just the margins on educational advisory. I know you'd made some tech investments earlier in the year. Are you past those investments? 'Cause I see a pretty big increase in margins this quarter. Like, I know that your long-term is 25% to 30% margins. Are we sort of past the investments, and is this sort of the new run rate? That's in the range of what our long-term expectation of that segment would be. We cited 20% to 30% as. I know that's a wide range, but we cited 20% to 30% as a range for a technology backbone, less labor-intensive, technology-delivered service. I think it's fair to say that in a more emergent type of segment like the Ed Advisory business, there are periodic and episodic investments that need to be made. I wouldn't say that the investments are in the rear view mirror. Just at the earlier part of the year between some technology, some enhancements, you know, the build-out of some of the elements of the Sittercity marketplace, the ongoing investment in our EdAssist business, which is both doing advising for adult learners and administrative processing of the college, it's the college work. It is an ongoing investment and I think keeping up with the developments and innovation in that sector will require ongoing investment. I think we were just trying to point out why it might be lumpy. You know, a couple of quarters may have some investment, and then you may see either the short-term payoff or a longer-term payoff strategy. Got it. Thank you so much. Really appreciate it. You're welcome. Thank you. Our next question is from Jeff Meuler with Baird. Please proceed with your question. Yeah. Thank you for taking the question. Question on full service margins. I hear you on seasonality and temp staffing cost. On the other side, you have the ARPA benefit. Is there anything else that's worth calling out? The one that would potentially come to mind for me is anything on the Australia acquisition. I understand you're excluding the transaction costs, but are there any, like, upfront costs, severance, it onboards at lower margins? There was acquired deferred revenue write-off of a month push. Just anything else that would be unusual that's going into the back half margins? I mean, it's a good question. I don't think we want to sound like we're just giving a litany of things that could be headwinds, but there are. We have some integration costs with the Australian acquisition, which are not the transaction costs themselves, but just as you say, some costs of onboarding the team and whether it's one-time system conversions and things like that. There's about $1 million, just under $1 million in the H2 that would be affecting the margins. A little bit of that continuing next year, but it would begin to abate as we complete the integration early in 2023. The other thing I'd call out, Jeff, is that in the US, I think we've been experiencing, of course, some inflation, but energy costs in the UK and the Netherlands have been particularly high. You know, they're smaller portions of our business, but they certainly are adding, you know, several million dollars to the H2 of the year in terms of overall cost inflation that has, you know, the opportunity to be both persisting and/or abating if things settle down a bit more in Europe. That's another headwind, I guess, that I'd call out. Thanks for that. On Back-Up Care, I get that their type expansion is broader than summer camps and the other areas are growing. I hear that the momentum and record usage for traditional full-service is continuing. Just given the seasonality, can you quantify Steve & Kate's for us in the quarter and the year ago from a revenue perspective? Is there any tail of that into Q4? Is there any like outsized margin benefit from that business during Q3? You know, we don't really tend to pull out and quantify these smaller groups. I'd say you've hit on an important element, which is Steve & Kate's camps have a very you know high utilization over the summer, and the revenue actually falls away. And they have intermittent camps for different events for Yom Kippur or Rosh Hashanah over the holidays and school you know school vacation times. There are opportunities there, but it's not the same intensity as we experience over the summer. They certainly contributed several million to the revenue growth in the quarter. That would be you know much more so in Q4. Okay. Then just last for me, can you just talk through, balance sheet management plans, just how you're thinking about steady-state leverage currently kind of managing fixed versus floating exposure, et cetera, given rising rates? Sure. We had obviously some significant investments in the Q3 with the acquisition of Only About Children and also had some substantial share repurchases. We're at about 3.5 turns of debt right now. You know, that's certainly a comfortable level for us, given our EBITDA profile, et cetera. We would be looking to, you know, sort of continue to grow into that at this point. We've always said that we go to 2.5x to 3.5x with our general leverage target, and doing a significant acquisition like Only About Children, taking us to that or, you know, outer edge of that is certainly something that is right in our strategy. We are seeing some escalation to the interest cost, but we do have caps on our debt on 80% of it that is protecting us from the variability of interest rates. A portion of those caps roll off next fall, and then we have sequential forward-starting caps that tail on after that. We have our debt is essentially 80% to 90% covered and converted fixed with those caps in place and a little bit of variable rate exposed. Very helpful. Thank you. Thank you. Thank you. Thank you. Our next question is from Stephanie Moore with Jefferies. Please proceed with your question. Hi, this is Hans Hoffman in for Stephanie Moore. I was just wondering, you know, outside of financial services and healthcare, are you guys seeing any verticals, you know, where employer-sponsored daycares is beginning to ramp, I guess, a bit more than you thought? Then just sort of, you know, what does the sales cycle look like there? Yeah. When we think about industry verticals, I think we've shown really good success over the years across verticals. Certainly, in the current day, there's particular strength as we've announced over the last, you know, 18 months in healthcare and higher ed. But in addition to that, we certainly are seeing it in manufacturing and distribution as well, which are 2 industry verticals that historically were not as much a focus of our efforts. I think given the challenges that they see and the workforces that they are looking to attract and retain, on-site childcare centers have become a more attractive element. Overall, in terms of the pipeline, we feel good about it. As I mentioned earlier, we feel good about some new ground-up opportunities as well as the transition of management from some self-operated programs. Overall, we feel good about the pipeline. We feel good about the interest, both inbound and us approaching. Overall, you know, going out of the year into next year feeling good about the interest. Got it. That's helpful. If you could just provide us, you know, with an update, I guess, you know, how you're kind of thinking about capital allocation priorities. As I just said, we did some pretty significant capital investment in Q3 with our acquisition of Only About Children and about $180 million or so share repurchases. We are in a you know absorption digestion mode. Certainly, are continuing to look at smaller tech and acquisition opportunities, and we'll continue to be judicious about those. At this point, we are in a you know focus on growing enrollment and recovering you know in the primary-based business. We have a number of lease models that are you know in development, and so those are new center growth that's in the $35 to 50 million of spend in a you know next 12 month period. That's a primary focus of capital allocation at the moment, and we'll be paying down the revolver that we have outstanding. That's about $100 million or so, and that would be the near-term view. Got it. Thank you. You're welcome. Okay. Well, thank you all very much for joining us on the call this evening, and wishing you a good evening. Thanks, everyone. Take care. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.