Bright Horizons Family Solutions Inc (BFAM) 2002 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to your Bright Horizons first-quarter earnings release conference call.

At this time, all of the participants have been placed in a listen-only mode, and the floor will be open for your questions and your comments, following the main presentation.

It is now my please to turn the floor over to one of your hosts, Mr. David Lissy. Sir, you may begin.

Thanks, , and hello to everybody on the call today. Welcome to the Bright Horizons Family Solutions 2002 first-quarter conference call.

Joining me on the call today is Roger Brown, our Executive and Chairman, and Elizabeth Boland, our Chief Financial Officer.

Our earnings release was sent out shortly after the market closed this afternoon, and contains many of the financial details we'll discuss on the call today. It's also available on our Web site, www.brighthorizons.com.

Before we start, I'll ask Elizabeth to read our Safe Harbor statement.

Thanks, Dave.

In accordance with Regulation FD, and in the spirit of making information available to the public and the investment community, in a timely and consistent manner, we use conference calls and other public forums, to provide information about our business operations and financial performance, as well as our expectations for the future.

We adhere to restrictions on selective disclosure, and appreciate your understanding of the limits to which we will be able to comment on items not previously discussed in these forums. Among the risks and uncertainties that may cause future operating results to vary, from those we may describe in any forward-looking statements, are our ability to execute contracts for new center commitments, to enroll children in our centers, and to retain clients and center management contracts.

The specific risks, associated with our business, are detailed in our SEC filings, including our Form 10-K, filed in March of 2002.

A replay of this entire conference will be available through Friday, May 3rd, by calling 973-341-3080, and entering PIN code 3210509.

As Dave mentioned, our earnings release is available on the business wires, and in the investor relation's section of our Web site.

Thanks, Elizabeth.

I'll start by recapping the quarter's results for you.

Net income increased 33 percent to 3.7 million, or 29 cents per diluted share, in the quarter ended March 31, 2002, from 2.8 million, or 22 cents per diluted share, in the first quarter of 2001. The increase in net earnings, and EPS, was driven by strong margin performance of 15 percent, versus 14.9 percent in last year's first quarter, and a 16-percent increase in revenue, 94.5 million, versus last year's 81.7 million.

Overall, we're quite pleased with this year's quarterly results.

We added 10 new centers this quarter, including centers for new clients, such as the Lamont-Doherty Earth Observatory at Columbia University, Blue Cross and Blue Shield of Alabama, the Western Pennsylvania School for the Blind, St. Luke's Life Works in Stamford, Connecticut, and a center and partnership with IBM and Intel, in Beaverton, Oregon.

In addition, we opened our 14th backup center for JP Morgan Chase, our 33rd dedicated backup center overall, in addition to the 28 backup programs that we operate within full-time centers, our fourth center for Pfizer, our third of 13 planned centers for the UAW/Ford, our third center for Bear, and we assumed management of a center for Lotus, right here in Cambridge, Massachusetts.

As a quick side note, IBM now participates in over 20 centers with us, in the U.S. and Canada, and will soon be our first client to operate in three countries, with the opening of a new center in Dublin, Ireland, later this summer.

As you can tell, new centers span many business sectors - education, financial services, pharmaceutical, manufacturing, healthcare, social services and technology. With the addition of the new IBM/Intel center, we also began operations in Oregon, our 37th state.

As in prior periods, we also closed two centers during this past quarter.

As we talk about our growth, I want to share some recent developments abroad. As you recall, we made our initial investment in the U.K. and Ireland in 2000, with the acquisition of two small high-quality childcare providers. The management teams stayed on with us, to help drive the growth and provide the critical links, in terms of local support of cultural sensitivity. Since then, we've been cultivating relationships, and developing new center leads, which will begin to show results this year, in line with our traditional two-year sales cycle.

In December of 2001 we opened our first new center in the U.K., the first dedicated backup center in London. Earlier this month we added our first new center in Dublin, since the acquisition of Circle of Friends, a little over a year ago, when we opened a center for the European Commission, a major policy and administrative arm of the European Union.

In addition to its contribution to the success of our Ireland operations, we also see this as an exciting opportunity to introduce our quality childcare, and employer-sponsored model, to the wider European Union audience. We expect to open three more work-site centers in the U.K. and Ireland later this year.

Lastly, today I'm very pleased to announce that we have an agreement to acquire Red Apple Nurseries, a small local childcare provider in Scotland. We've long viewed Scotland as the next logical step in our U.K. expansion, and we're very excited to add Red Apple's four consortium-type childcare centers to our U.K. operations in the second quarter.

This acquisition follows our proven strategy of partnering with premier local providers, to service our entry point into new markets. It will allow us to position ourselves with prospective clients in Scotland, with an established base and sensitivity to local culture. When this transaction closes, later this quarter, we'll be operating 17 centers in the U.K. and Ireland. We continue to view both the U.K. and Ireland as fertile ground for expansion, and are actively pursuing both organic growth and selective acquisition opportunities.

Overall, our pipeline of new centers remains solid, with over 55 centers under development, and is diversified, in terms of both industries and geographies represented. Centers under development for existing clients, include the UAW/Ford, JP Morgan Chase, Motorola and IBM, along with centers for new clients, such as Union Pacific, AstraZenica, Georgia Tech and MIT, just to name a few.

I want to take a moment and give you our current outlook on the economy. Although we're starting to see some early indicators of a recovery, we still believe the economy remains weak, and we continue to see the intended weakness on our operations. Overall, the favorable impacts of the current economic conditions, primarily reduced wage pressures, and easing in the hiring market and lower teacher turnover, continue to counterbalance the unfavorable impacts, mainly a slightly longer sales cycle, and selected client-specific layoffs that have affected a small number of our centers.

Despite the current economic downturn, it's clear employers still need to attract and retain talent. Unemployment fell slightly again last month, and now stands at 5.7 percent, still far below the rates we experienced in past recession periods, while unemployment in the managerial and professional ranks, our primary parent population, decreased to three percent in March. And, women with children under age six still remain the fastest growing segment of the workforce.

The bottom line is that demographics in the workplace are still strongly in our favor, and employer-sponsored childcare remains one of the most effective and economical ways for employers to recruit and retain talent.

Our success will continue to be driven by the skill and diligence of our operations and business development teams. We continue to be proactive in working with clients to identify opportunities for reducing subsidies, where need be. These strategies may involve reducing the hours of operation, altering the scope of auxiliary services, or opening the center to community enrollment. We're pleased with our success in helping clients reduce their subsidies where necessary, while maintaining our high-quality standards, as well as our financial returns.

Our success in helping some clients reduce costs has had a modest effect on revenue growth, as lower overall cost structures will result in lower operating subsidies and cost-plus contracts. Under these management contracts, we earn a fixed fee for our services, so our net earnings are not affected by this revenue variation.

In summary, we're very pleased with our strong results this past quarter, which continue to illustrate the stability and consistency of our business model. While we continue to operate in uncertain economic times, we remain optimistic about our outlook for this year and beyond, as we continue to deliver on our mission, to help children, families and employers work together, to be their very best.

I'll now turn it over to our Executive Chairman, Roger Brown.

Thanks, Dave. Hello everyone on the call.

I'd like to touch on a couple of areas today. The first is the recent "Wall Street Journal" article that was regarding the closure of two employer-sponsored childcare centers - Tyson Foods and Honeywell - and the inference that this was a trend in our industry. One of the centers mentioned is managed by Bright Horizons, while the other is not.

Due to client confidentiality, we don't publicly comment on specific center closings. If you can imagine, most clients don't want to bring media attention to a center closing. But, I do want to reiterate that center closings are a normal part of our operations. Centers close for various reasons, mainly due to factors related to specific employers, and very specific circumstances, such as relocation of a manufacturing plant, the sale of a division of the business, et cetera.

Over the past several years we've closed approximately 10 centers per year, a pace consistent with our normal operating expectations. To be specific, in '97 we closed 11 centers - in '98 nine centers - in '99 11 centers - in 2000 nine centers - in 2001 eleven centers. So, for an average about 10 a year.

We continue to see growth in new centers, and we continue to secure new commitments, among both new and existing clients. As Dave highlighted, Pfizer just opened its 5th center, Bayer its 3rd, JP Morgan Chase its 14th, with three more underway. In addition, 60 percent of the centers in our pipeline are for new clients. The initial decision is often the hardest to make, so this is an encouraging signal. Although we've seen a slightly more deliberative decision-making process on the part of our client, as they assess their situation, vis-à-vis the recession, we continue to see strong demand.

Independently, a recent Hewitt survey of 945 employers, polled between 2001 and 2002, indicated that 93 percent reported having some type of child care benefit for employees, up from 91 percent the year before, despite the economic downturn. And, despite the fact that some centers do close each year, our growth is the dominant player in the industry, and survey data, such as Hewitt and others, suggested the trend in U.S. childcare has remained strong, right through the recession.

The second thing I want to discuss is the whole public policy of Reno, which is another area of principle focus for me, as Executive Chairman. And, I want to speak to early education and childcare policies and initiatives.

As you know, on April 2nd, President Bush announced his early childhood education initiative, with a goal of making sure that every child, in the United States, enters school ready to learn. This is a vision long shared by Bright Horizons, and we're encouraged by the new level of federal attention to this important issue.

The disparity in public money for preschool is substantial. On average, public spending, per preschool student, is only $1,000 per year, versus 8,000 per year for K through 12, and $15,000, per student, per year, for higher education. Thus, the newly focused attention on the importance of preschool education is welcome news to all of us in the childcare and early education fields. From our perspective, there's both an altruistic, and a business purpose, to actively participate in the shaping of federal and state early-education policies and initiatives.

Altruistically, widening access to childcare, and improving the quality of programs and services, is good for the nation, and especially important in our efforts to live up to our calling as a land of opportunity.

From a business standpoint, having a place at the table provides a better insight into long-term trends, allows us the shape a response and serves to heighten the profile of Bright Horizons, as the premier provider of high-quality child care and education.

The day after the President's announcement, I had the opportunity to join business leaders and educators, from around the country, to hear directly from President Bush about this new initiative. I was there that day as a member of Corporate Voices, which is an organization whose membership includes many of our nation's top employers, and many of our own clients, as well. The goal of this organization is to actively promote and to help shape government policies and initiatives, in the work/life area, particularly early childhood education. And, it's a business group that's made up largely of employers.

Influencing policy and initiatives, at the federal level, is by nature a long-term undertaking. Important legislation can take years to develop and pass to Congress. However, the immediate significance of this group is that its existence alone highlights the importance of work/life initiatives, and the commitment of employers across the U.S. It's gratifying to see so many of our clients among this outstanding group of employers, and we're excited about the opportunities for this new organization.

So, our view, in general, is you can't close the K through 12-achievement gap that exists between children from affluent backgrounds, versus children from poor backgrounds, without strong early childhood education. And, as we, as a country, continue to focus on measuring results, in K through 12 education, that will lead us to make more investments in early childhood education, which we think will be good for the country, and ultimately good for Bright Horizons, as well.

Although participating at the federal level is important, the fact is that up until recently the most concrete initiatives, in the childhood care and early education field, have come from the grass-roots state level, not the federal level. As such, we're actively partnering with Children, or organization that works at the state level, to promote better funding for teacher training, improved wages for teachers and higher-quality programs, in general.

These efforts raise awareness, regarding the impact that quality can have, and serve to highlight the difference between high-quality programs and services, such as those at Bright Horizons, and the less expensive, but lower-quality programs that are unfortunately all too common in the industry.

I will now turn it over to Elizabeth, to highlight for you the quarterly results in more detail.

Thank you, Robert.

To recap the key metrics, net income of 3.7 million, for the quarter, grew 33 percent, while EPS for the quarter, of 29 cents, was up 32 percent, from 22 cents in 2001.

Revenues for the quarter, of 94.5 million, are up 16 percent, over 2001 levels, and weighted average shares of 13 million were two percent higher this year, than last.

The 16-percent top-line growth, this quarter, is driven by new center openings, additional enrollment in our ramping centers and tuition increases, at an annual rate of four to five percent.

Revenue gains were somewhat offset by slightly lower revenue growth in our cost-plus centers. Revenue and cost-plus centers are a function of parent tuitions, operating cost subsidies and management fees. As Dave mentioned in his remarks, we have been experiencing less wage pressure, and are proactively working with our clients to maintain lean-cost structures, in the center operations.

This quarter, our operating supports from clients were one-and-a-quarter million dollars below our projected levels, which resulted in lower revenue growth for these centers. We expect such operating efficiencies, and the intended reduction in subsidies from clients, to continue through the remainder of 2002.

Operating income margin, as a percent of revenue, increased to 6.8 percent for the quarter, compared to 5.9 percent in '01. The most significant factor of this is the elimination of goodwill amortization, which added 60-bases points to the margin. But, in addition to that, center margins, as a percentage of revenue, increased to 15 percent, from 14.9 percent in 2001.

The marginal improvement reflects several offsetting items. One, the proportionately higher return in cost-plus centers, where we earn a fixed fee, with slightly lower revenue. The return dollars are the same, although the percentage increase is modestly. Secondly, we have enrollment gains in our maturing base of profit-and-loss centers, countered by new profit-and-loss centers, ramping up to mature levels of occupancy.

Moving on to overhead, we continued to tightly control our G&A spending during the quarter, with overhead as a percentage of revenue decreasing 20-bases points, to 8.1 percent. The focus of our overhead investments continues to be within the operation support team and our client services growth team.

Our international operations, which still comprise less than two percent of our revenue, continue to perform well. With four centers scheduled to open in 2002, in addition to the four centers under agreement in Scotland, we expect European operations to achieve the requisite scale, to rationalize our overhead investment, as planned, by 2003.

Net interest income for the quarter was 21,000, compared to 78,000 of interest expense in the same 2001-quarter, due to modest levels of cash, offset by the commitment fees and interest on intermittent working-capital borrowing.

We ended the quarter with approximately 15 million in cash, which is an increase of $3 million, since year-end, and we have no borrowings outstanding on our line of credit, at the end of the quarter. We generated over seven million in cash from operations for the quarter, a direct result of our strong bottom-line performance and viligent attention to working capital management.

EBITA, as another proxy of cash generation, approximates 8.9 million for the quarter, up 25 percent from last year's 7.2 million, and it has been over $30 million for the last four quarters, on a rolling basis.

We ended the quarter with 398 centers, as we added 10 and closed two. Total capacity at quarter end was 49,250, with an average center capacity of 124. At the end of the quarter, approximately 58 percent of our centers are profit-and-loss, and 42 percent are cost-plus contracts, consistent with last quarter.

Our current centers break down into the following industry sectors: About 18-percent commercial banking and insurance - two percent for investment banking and financial services - 11 percent each for technology and healthcare - eight percent each for consumer and pharmaceutical - seven percent for government - five percent for manufacturing and industry - three percent higher education - and 27 percent office-park consortium and all other.

Using the same metric to look at our pipeline of committed centers, we have 10 percent in banking and insurance - five percent each for technology, healthcare and pharmaceutical - 15 percent for consumer - 30 percent for manufacturing and industry - 10 percent higher education - and 20 percent office-park consortium and all other.

Our guidance for operating performance for 2002 is based on a forecast for the rest of the year that assumes that general economic conditions continue as they are now, with modest improvements manifesting themselves in 2003. This means that unemployment stays in the five to six-percent range, that we continue to maintain enrollment in our mature centers, and ramp up our newer programs, at a similar pace to what we've experienced over the last 12 to 18 months, and that demand for new programs continues at the pace we have seen, during the course of this recession.

So, we expect top-line growth to approximate 18 percent for the year, at the lower end of the range we estimated in December of '01. This will be driven by the pipeline of new centers, scheduled to open on '02, coupled with stable enrollment in our core base of existing centers, and tuition increases in the range of four to five percent, offset by the lower operating subsidy in cost-plus centers.

We project that we will add 43 to 47 net new centers in 2002, and expect center margins to be consistent with 2001 levels, at 14.7 percent. Although we project that over time annual center margins may approach 15 percent, given the mix of profit-and-loss in cost-plus contracts, we are not modeling any increase in center margins for '02, due to the continued softness in the economy, and the attendant risks to tuition rate increases and enrollments.

We will continue to leverage overhead, to approximately 8.1 to 8.2 percent for the year. We estimate amortization, of other intangibles, to approximate $400,000 for the year 2002.

The change in accounting for goodwill amortization, as you all may recall, is adding about two cents a share, per quarter, to our EPS this year.

We project capital spending to approximate 17 to 20 million, and would expect to periodically borrow under our line-of-credit, during heavier periods of capital and construction spending. Coupled with our outlook for continued very low interest rates on our operating cash flow, we expect to have modest net interest expense, in 2002, of five to 10,000 per quarter.

With a 42-percent tax rate, and a two-and-a-half percent increase in weighed average shares outstanding, to 13 million 150, we project EPS to be in the range of $1.15 to a $1.17 per share in '02. That's consistent with the guidance we gave at the beginning of the year. This translates to a 30-percent plus increase in net income for 2002.

With respect to quarterly results, we tend to have some seasonality to the business. Margins are relatively higher the first two quarters of the year. You can see that in the 15-percent center margin we had this quarter. They dip in the summer, the third quarter, when older preschoolers graduate to the public school system. We then rebuild this enrollment, through the Fall, and see an up in the fourth quarter. We would expect historical trends and quarterly results, therefore, to continue in future quarters, and in future years.

So, given the visibility of our business model, both the pipeline, our long-term contracts and what have you, we also provide detailed EPS guidance, by quarter, for you, on our quarterly calls. So, our quarterly guidance is as follows:

For the first quarter we had given guidance of 27 to 28 cents, and we're reporting today 29 cents. In the second quarter of 2002, we would expect 29 to 30 cents a share - in the third quarter 27 to 28 cents a share - and in the fourth quarter 29 to 31 cents a share. That gives you an overall range of $1.14 to $1.18, in our individual quarterly guidance, and what we're comfortable with, for the year, given what we are seeing in our operating business, if $1.15 to $1.17 range, for '02.

, we will now open the call for questions, and we are ready when you are able to lay that out.

Yes, ma'am. The floor is now open for questions. Should you have a question, or a comment, please press the numbers one, followed four, on your touch-tone phone, at this time. If at any point throughout the queue your question has been answered, please remove yourself from the queue by pressing the pound key.

Questions will be taken in order they are received, and we do ask, while you pose your question, to please pick up your handset to provide optimum sound quality. Thank you.

Our first question is coming from . Please announce your affiliation.

, SunTrust Robinson Humphrey. Congratulations.

Thank you.

Thanks, Richard.

First question, I guess is if we could walk through the cost savings a little bit? You threw out a number there, I think it was one and a quarter million cost savings, on the cost plus. If we could walk through the dynamics of that again, I'd appreciate it.

Well, let me take a stab at that, Richard, and make sure that - let me know if you want a follow up on that.

What happens in a cost-plus contract is we budget, at the beginning of the year, with the client - each client gets an individual budget process. We go through that and estimate what the different cost components will be, which is primarily labor. Eight percent of our cost structure is salary and benefits oriented.

So, our revenue buildup for the year, in terms of a budget process, considers the estimates that we have, for what we will spend on labor, in addition to the other controllable costs, like food, and education supplies, and what have you.

So, when we are working with a client on the overall configuration of the center's budget, we consider all of those aspects. And, what we are doing with clients, at this stage, in some selective markets, is working with them to slightly modify their operating hours, or to have fewer ancillary programs, in some cases. And, as you know, some of our clients have experienced some layoffs, so their operating costs are lower than what we predicted and, therefore, the reimbursement that we get from the client is slightly lower than what we had budgeted.

So, it's a $1.20, or $1.25 - it's a million-and-a-quarter, a dollar's worth of revenue this quarter, but, as you know, we get a fixed return in these contracts, so the contribution from each of these centers is the same, regardless of our revenue level.

OK. And, just to be clear, the 18-percent top line incorporates similar situation going in the second, third and fourth quarters?

Yeah. We have - what we've worked to do is reforecast that to incorporate the effects that we're seeing now - yes.

OK. Second question, if I could, and then I'll turn it over. You know, last year, you guys completed an acquisition there, in the Massachusetts, Boston area - the Workplace Connections - you know, I guess nine centers, five of which were backup. Essentially 25 new clients were added through that acquisition. Have you further penetrated those new clients? Have any of those added additional centers?

Richard, this is Dave. We have had a number of discussions with those clients, because most of those clients have other locations around the country - a lot of law firms and a lot of other financial services firms that were partners with some of those back-up programs - that prior to our acquisition of Workplace Connections, Workplace Connections could not serve that need.

So, in one case we have been successful in selling some spaces in another one of our centers, in another location, to one of the clients. But, my guess is that as we go forward we'll continue to see some similar results, in terms of - you know, I couldn't commit to say that it would be another center that'll specifically come out of it, but I think there'll be other opportunities that'll come out of those clients.

OK. And, I guess one final question. On the pipeline I believe you said 55-committed centers. You know, I guess a maybe a little bit more color on, you know, how many are under - in various forms of development and whatnot?

Well, when we talk about 55-plus centers in the pipeline, just as we've always talked about, we're talking about committed centers, under contract, under development. And, then there's a separate grouping of centers that are earlier-stage prospects that are hopeful to - you know, we're hopeful to get to that point. So, what we're sharing with you, in effect, is our closed business.

OK, thank you.

Thanks.

Thank you. Our next question is coming from . Please announce your affiliation.

My affiliation is Bank of America Securities. Hello, everybody.

Hi Howard. Congratulations on a very nice quarter.

Thanks.

A bunch of questions, actually on the pipeline, and I'll start with, in the 55 number, Dave, how many of those are backup, and maybe how many are in Europe?

Of the 55, Howard, five are backup centers and are in Europe.

OK. And, on the last call you were kind enough to mention that since September 11th, I think you said you had 20 new commitments. And, again, I don't if commitment means additions to the pipeline, or not. But, if you could update that metric commitments, perhaps since the last call?

I don't have a specific number for you, updated since the last call, Howard. I can just say that, you know, as you know, we opened 10 centers in the first quarter. So, we had a similar number of 55-plus centers in the pipeline, during our last call. We continue to have that. So, what I can you is that we've been able to rebuild the pipeline, in pace with the centers that we've opened.

So, the pace of commitments we feel continues to be consistent with what we've seen, you know, since September 11th, and even prior.

OK. And, I think you also said - maybe this is the number that you're not ready to show yet, that there were 150 to 170 prospects, in early stage, pre commitment. Is that something that can be updated yet, or ...

I think the numbers still hold, in terms of the amount of prospects, although I will tell you that - again, I don't have the numbers to report to you. But, the move from - the sales team, at this point, is seeing some good initial activity, on the earliest of prospects, although we're not ready to report numbers on that yet. The feeling is that there is some signs of recovery, from the perspective of the folks, at the early stage.

OK. And, then I don't know if you offered the same measure last quarter, that you just offered a few minutes ago, which is that - I think Roger said that the percentage of pipeline - of the pipeline that is for new clients is 60 percent. Is that a change one way or another, from the prior quarter, prior year? Is there anything we can read into that number?

Only marginally. I would say the numbers are pretty consistent, with where we've been prior quarter and prior year.

OK.

I'd say marginally one or two - you know, less than five-percent swings, at any given point in time.

I think the point there, Howard, is that even with the economic weakness it has not softened. We're not seeing fewer new commitments, from new clients, so we've been able to sustain that 60/40 split, even through the last year.

OK. And, then - I guess, Elizabeth - the capacity in the pipeline is, you know, 15 greater than the capacity of the average center, but yet the capacity of the existing centers really hasn't changed much.

Right.

Is there a point in time when we should start to see that creep up a bit, because of the strength of the pipeline?

Well, I think that in time it will creep up slightly, but given the complexion of the backup centers - as Richard mentioned, the Workplace Connection's acquisition we did was a number of smaller centers. There are enough offsetting factors that's it's tough to move the needle on the overall average.

So, I would say that we may see, in another year or so, the overall average pickup by maybe one, but it'll be a slow up-tick at this stage. Even with 140 average capacity, looking out, that's still only 55 centers, at that size, on average, out of 400.

OK.

Let me just correct on thing on the pipeline, vis-à-vis Europe. We have the four centers, n the pipeline, that are scheduled this year, plus the four centers for Red Apple. So, there's eight ...

Right.

OK.

... in Europe.

And, then the - just out of curiosity, in Georgia we've been sort of tracking that traction, since that tax credit passed. I think it was five centers that opened since the tax credit. Any change in that number?

Well, one of the centers that we talked about earlier, when I talked about some of the representation in the pipeline, is Georgia Tech. So, that's .

OK.

That's another example of what we talked about, about the Georgia tax law.

They don't pay taxes, so they're probably not incented directly by the tax credit itself. But, I think the momentum - what you find is the momentum, for an employer, is if everyone around you is opening a work-site child care center, it creates some amount of pressure for you to do the same.

And, I think over the next two years we'll see - especially if the economy rebounds, we'll see a lot of Georgia companies getting with the program.

OK. And, two more quick - I know this is a long list, but they're all easy ones. The center in Toronto, I think it was 190 capacity. I was just wondering if you might give us an update as to where that sits in its development - I forget.

I'm sorry, which center?

I thought it was this IBM/Siebel center in Toronto.

IBM/Siebel - OK. That center opened in the fourth quarter of last year.

Yeah, it opened in the fourth quarter, Howard, and it's in its typical phase of ramp up, which is, you know, early stage. You know, we're seeing enrollment, you know, in line with what we'd see in any center, ramping up, of that size.

OK, thanks. And, the last question is, the wait list, we always talk of them giving a sort of 20-percent coverage. Any change in that over the last quarter or so?

No. I think that we're - you know, we're pleased with the continued strength of the enrollment, and wait lists are pretty consistent across in the infant/toddler - across the infant/toddler ranks we're at the higher level of preschool enrollment, at this time of year. This is when we sort of peak with preschoolers, and then that will begin to fall off again in the Fall. So, pretty consistent with the last quarter.

Great. Thanks again. Congratulations.

Thanks.

Thank you. Our next question is coming from . Please announce your affiliation.

Hi, . I think actually I had - my question has been answered. Thanks.

OK, thanks Mike.

Our next question is coming from . Please announce your affiliation.

Hi, , from First Boston. Congratulations, as well.

Thank you.

Thanks, .

A couple of quick ones. Elizabeth, maybe if you could kind of guide us to where your telecom exposure is? Is that included in the technology number, or in manufacturing, or do you have any telecom exposure?

It would be included in the technology sector, but we don't have telecom exposure.

OK. Second easy one, maybe on the Red Apple acquisition, some idea of the center size there, and how different or similar those centers are, to the ones you're already operating over there, in Europe?

OK. Well, let me start it off, and people can jump in, with a little more information.

Overall, the average center size there is a little bit bigger than the Nursery Works Center, but still smaller than our average. The overall average is around 70. So, a wide range of sizes, but they are what we consider our typical work site, office-park conversion type model, serving parents of a variety of employers, at that location. Three are in Edinburgh, and one is in Livingston, Scotland, so a good concentration.

And, just a little more color on that. Part of the logic for doing this was as we began to attempt to sell in Scotland, it became really clear that although we were in the U.K. in London, you know, Scotland was - although part of the U.K. - clearly a different place, in terms of its own culture, and for a lot of reasons needed its own local team. And, we believe that having a base there, that's sensitive to what's happening in Scotland, will be a big key in our ability to continue to convince clients to come onboard with us.

OK. And, then a last question - maybe this is for - I'm not sure who it's for, actually. With all the talk about early childhood education, and you kind of have like a small toe dipped in the water, in terms of the school's business. Do you see any kind of push, from your clients, to maybe take a foray into the private school markets, kind of the dedicated private school market, or do you see a better opportunity now with kind of the overall political demand for more consistent early childhood education, as you kind of expand your scope a little bit?

Well, there are two things going on. Lets talk about them separately. First, is the whole notion of an employer-supported primary school, which we continue to be open to be. We've had conversations with many clients about it, and we're actually moving forward. I'd say 80, 90 percent likely, with one of our clients to do an employer-supported charter school.

We don't think that's going to be a huge business sector for us. We do have the pilot in Seattle - Chestnut Hill Academy - which continues to do quite well - produces good results. It's a private school. It's not a charter. It's not employer supported, but we think gives us the educational model we need to demonstrate our confidence at doing primary-school education.

So, I think you'll see, over the next decade, a little bit more work, on our part, in that arena. You know, if there was a part of the country that goes to a voucher model for secondary education, you might see us become a player in that. But, really no imminent plans on that front.

The second piece of your question is what impact is this set of movements, both at the state and federal level, going to have on us, in terms of our core business? And, there I'm actually quite optimistic. Again, not in the short term. I don't think this is any kind of catalyst for a dramatic change in our business, in the immediate term.

But, over the next decade the expenditures that you see, between K through 12 education and higher ed, which I mentioned were like eight and 15,000 per student, per year, and early childhood education, which is less than a 1,000 per student, per year, those are going to equalize somewhat.

We're going to start investing more money in the education of young children, because all the - you know, both the for-profit school providers, the non-profits and the public school system is going to - they're going to come to the conclusion that they cannot move those student scores, if children miss out on the first five years of their education, when they're very young and when they're learning some very important skills. So, I think that investment will increase.

We're a logical party to be working with state, local governments, and other people, to provide high quality early education to families who couldn't afford it in the past. So, it will both, I think, improve the enrollment in our existing employer-supported centers. It will also make, for some employers who think it doesn't make sense to do a center, because some of their lower-income employees can't even afford it, even with the level of support they could offer. Some of them will say, well, the governments willing to step in and help pay for the operating costs - yes, this does make sense for us.

And, then finally, there'll be some cases - and we manage a few centers like this now - where through public funding we can run a very high-quality program that serves larger lower-income families, who would not be able to access child care, of our quality level, were it not for that.

OK. I appreciate it. Thanks.

Thanks, .

Thank you. Once again, if you do have a question, please press the numbers one, followed by four, on your touch-tone phone at this time.

David, do you have any closing comments?

Yeah, thanks , and thanks everyone. As you can tell from today's conversation, we're very pleased with the results we announced today, and we're enthusiastic as we look forward to the rest of 2002 and beyond.

If you have any more questions, Roger, Elizabeth and I will be here in the office tonight. Thanks again for joining us on the call today. And, as always, we appreciate your continued interest and support.

Thank you very much, ladies and gentlemen. This does conclude this afternoon's teleconference. You may all disconnect your lines at this time, and have a wonderful, wonderful evening.

Thank you.