Bright Horizons Family Solutions Inc (BFAM) 2004 Q2 法說會逐字稿

Welcome to the Bright Horizons earnings release second-quarter conference call. (OPERATOR INSTRUCTIONS). Now without further ado, your host, David Lissy.

Thanks, Mark. And welcome to everyone on the call today. Joining me here in Watertown is Elizabeth Boland, our Chief Financial Officer. And we'll begin today's call as usual, with Elizabeth outlining a few administrative matters. Elizabeth?

Thinks, David. Hi everybody who's joined us today. Our earnings release went out over the wire after the close of the market just about a half an hour ago and is available on our website www.BrightHorizons.com. This call is being recorded and simultaneously webcast, and a complete replay of the call will be available by telephone or webcast. Those wishing to access the replay via phone can use 973-341-3080 and pin code 4938853, while the webcast will be on our website under the investor relations section.

In accordance with Regulation FD, we use these types of conference calls and other similar public forums to provide the public and the investing community with timely information about our business operations and financial performance, along with our current expectations for the future. We adhere to restrictions on selective disclosure and limit our comments to items previously discussed in these forums.

Certain non-GAAP financial measures may also be discussed during the call, and detailed disclosures relative to these measures are in our press release and in the investor relations section of our website.

The risks and uncertainties that may cause future operating results to vary from those we describe in our forward-looking statements include -- one, our ability to execute contracts for new center commitments, to enroll children in our centers, to retain clients and center management contracts, and to expand an operate profitably abroad; two, the effect of governmental tax and fiscal policies on employers considering work site child care; and three, the capital investment decisions that employers make. The specific risk factors associated with our business are detailed in our SEC filings, including our Form 10-K filed this past March of 2004.

Now back to you, David.

Thanks, Elizabeth. And welcome again to everyone on the call. I'll begin today by reviewing the second quarter's financial highlights.

Revenue in the quarter of 137 million was up 17 percent over last year's second quarter, while net income of 6.9 million increased 34 percent and earnings per share of 50 cents rose 28 percent over the second quarter of last year. As you can see, this is another good quarter for us, with revenue growth and margin expansion combining to produce strong earnings growth.

I'll center my comments today on three main areas -- first, I'll summarize our year-to-date operational and financial performance; second, I'll review the new developments this past quarter, including a small acquisition we made in the UK and the significant expansion of our relationship with the UAW and Ford Motor Company; and lastly, I'll talk about the pipeline and our outlook for the remainder of 2004.

Let me begin with a review of our year-to-date performance. As we pass the midpoint of our fiscal year, our revenue growth so far is at the upper-end of our expectations and operating margins are up 110 basis points, driving EPS growth of 28 percent, solidly above the projections we made at the beginning of the year.

There continues to be four major factors that are driving these results -- first, the addition of new capacity to our network, including new organic centers, the outsourcing and transitioning of existing centers to our management, and acquisitions; second, tuition increases that slightly outpace corresponding average wage and other cost increases; third, the careful management of staffing levels at our centers; and lastly, modest enrollment gains in the neighborhood of 1 to 2 percent in our mature center base.

The impact of new center openings is by far the largest contributor to our revenue growth. We've added 44 net new centers since the second quarter of last year. As we've spoken about before, the mix of new centers over the past two years -- which includes a slightly heavier weight of transitions of management and acquisitions -- has had a favorable impact on operating margins given that they immediately contribute without the typical ramp up timeline for our average organic P&L center.

We're delivering on our plan to increase tuitions on average 4 to 5 percent this year. Our operations team has done an outstanding job of carefully managing our labor costs and staffing patterns, while continuing to assure high levels of quality in our programs. It is this interplay between managing annual price increases and labor costs where we find the biggest upside to improve our center margins.

At the same time, we continue to experience solid enrollment growth in our ramping centers and in our mature base. This incremental enrollment in our profit and loss centers continues to have a positive effect on the margin.

While do expect to continue to see strong results going forward, I should provide a little caution that the second quarter tends to be our strongest as enrollment levels are maximized prior to losing our preschoolers to elementary school in the late summer months, and then rebuilding that enrollment again in the fall.

On the overhead side, we have continued to invest in people and systems to manage our growth. Even as we make these investments, we have consistently leveraged our overhead spending as a percentage of revenue. Despite some additional spending this year on Sarbanes-Oxley compliance, we remain on track to continue this trend going forward.

I want to switch now and talk a little bit about our growth this quarter in terms of new center developments. We added 14 centers this quarter. Included in this mix were two new hospital clients -- San Juan Medical in New Mexico and West Jefferson in Louisiana. We now manage 45 childcare centers in hospital settings in 22 states and D.C. Also this past quarter, we opened new centers for the U.S. Patent and Trademark Office, the Massachusetts Institute of Technology and IBM, and we closed four centers.

In addition, I'm pleased to announce that in June we acquired a nine-center operation in the UK called Child & Co. This acquisition fills in our market presence in the Oxford area and includes centers for Bournemouth University and The National Health Service. These high-quality centers on the outskirts of London are larger in size than our current average centers in England and will immediately contribute to earnings while providing some leverage to our overhead structure in the UK.

Equally exciting news is the expansion of our partnership with the UAW and Ford Motor Company. As you'll recall, this partnership started back in 2001 when we began the development of a network of childcare centers, and it now has the capacity to serve nearly 2000 children. In addition, however, the UAW and Ford have also offered a much wider range of services for their employees and their retirees delivered through a network of family service and learning centers, as they're called. The childcare centers that we currently manage form an important core component of these services. The family center component, though, offers an even broader network of educational and recreational programs and services for the entire family, from children through retirees.

Since its inception in 2001, this part of the overall program had been managed by another vendor. As part of an expanded contract with the UAW and Ford which began just a few weeks ago on July 1, we assumed the management of these 26 family and service learning center programs located around the U.S. We are obviously very pleased that the UAW and Ford have valued our performance over the past few years and judged us capable of helping them reach their vision of providing a full spectrum of work/life supports for their employees.

We won't be breaking out the results for these programs separately, but let give you some baseline information. There are 26 family centers in all that we began managing on July 1. Consistent with our childcare centers that we have managed for the UAW and Ford over the past three years, the new programs are operated under a management or cost-plus contract.

Eight of these programs are co-located at our existing childcare centers that we have been managing, and will now be integrated together with their own dedicated management and staffing. 18 of these centers are independent of any of our existing center locations, and because they'll be operated independently, we'll include them in our reported center count. Programming, which includes before and after school in Richmond, retiree activities and community service, varies at each location. But on average we expect that each will generate revenue and contribution equivalent to a small backup childcare center.

We believe these programs represent another significant step forward in providing total work/life solutions for working families, and are thrilled to be expanding our partnership with the UAW and Ford in this manner.

All in all, we're very pleased with our results as we pass the midyear mark and look ahead to the remainder of 2004. Our biggest operations are performing well and the outlook for additional programs and services remains encouraging. Our pipeline of centers under development is steady at 50 plus centers, as we continue to backfill new openings with new commitments.

That said, the timing and the pace of the economic recovery remains the largest single variable in terms of our future performance, impacting both our clients' spending budgets, industry specific sales leads, and our overall sales cycle. We continue to see very good activity in the acyclical areas such as healthcare and higher education. This is fueled primarily by the nursing crisis and the hospital environment and issues of gender equality for tenured professionals in the university sector.

In addition to this, we are experiencing better selling environments in some of the more cyclical industries, namely in financial services. It will, however, take us some time to convert this renewed activity -- which had stalled during tougher economic times -- to new business, given our three-month to two-year average sales cycle. Overall, we remain encouraged by the depth and breadth of the pipeline and by the activity we continue to see in both early-stage and new-term prospects.

At this point in the year, we do have good visibility on our anticipated performance for the rest of 2004. We remain on track to grow revenue in the 15 to 17 percent range for the full year and are moving up our guidance for fiscal year 2004 earnings per share to a range of $1.85 to $1.88. Elizabeth will provide you more detail in a few minutes.

In conclusion, though, I want to talk for a minute about what I believe makes Bright Horizons such a unique organization -- our family of employees. We operate in a field, as you know, where people are truly our advantage. We just held our annual leadership conference this past June, where close to 700 of our directors and corporate staff from the U.S., UK and Ireland gathered for a mix of education and training and reward and recognition.

During this four-day event we hosted over 100 training sessions aimed at building and strengthening our high-quality delivery of programs and services. This coming together allows Mary Ann Tocio, our President and COO, and me, the opportunity to personally address our center directors and really tap into the pulse of the Company, directly communicating our vision and assessing how our strategic initiatives are playing out in the field.

It's an amazing and reinvigorating experience, and these types of events underscore the talent and dedication of our team and exemplify the culture that's led us to be named five times as one of Fortune Magazine's 100 best places to work. It is our culture and the passion of our team that's allowed us to grow while maintaining our focus on delivering high-quality programs. Ours is a demanding and exacting service, and each day we're entrusted with the care and education of children of some of the world's most productive and talented employees.

Last month we received the results of our annual parent satisfaction survey. This is an annual survey that we send to the 60,000 families we serve across the world. We're once again proud to have received for the third straight year a 98 percent parent satisfaction rate based on a 35 percent survey response.

Clearly, we still have many challenges in our day-to-day work, and it's our never-ending quest for excellence in our field that continues to drive us. We take a lot of pride in having consistently delivered strong results over the years, and at the same time have never been more excited about the many opportunities that are in front of us.

So let me to turn it over to Elizabeth, who will take you through the numbers in a little more detail before we open the floor up for question and answers. Elizabeth?

Thanks, Dave.

So to recap, revenue for the quarter of 137 million was up $20 million, or 17 percent from the second quarter of 2003. Operating income of 8.6 percent increased 35 percent to 11.8 million, while net income rose 1.8 million to nearly 7 million. Earnings per share for the quarter grew 28 percent, to 50 cents a share from 39 cents last year on a 5 percent increase in our weighted average shares outstanding.

The top-line revenue growth was driven by the three main components Dave alluded to -- growth in the number of centers we manage, additional enrollment in ramping as well as mature centers, and price increases. The growth from new centers includes the effects of all those added since this time last June, obviously, including the year-over-year impact of our Brookfield Academy schools and the Marin Day Schools management contracts which were acquired in July and October of 2003, respectively.

These programs, along with the others that Dave walked through with you previously, have contributed to our 9 percent capacity growth, which is the largest driver of our top-line expansion year-over-year.

In terms of enrollment, we see solid growth in our class of ramping centers, as well as modest but meaningful enrollment growth of 1 to 2 percent in our mature base of centers, including mainly profit and loss centers that have a contributory effect with that. Our mature centers now comprise over 80 percent of our center base.

Average tuitions, the final component of our top-line growth, are up 4 to 5 percent over last year. Center margins for the quarter increased 140 basis points, reflecting a continuation of the trends that we started to see in mid-to-late 2003 and then continuing into this year. Our operations team continued to deliver that quality service for which we are known while managing the balance between labor costs and the tuition rates that we can charge.

As the economy continues to rebound we are cognizant that labor pressures are also likely to increase. Although we have not yet seen unusual increases in these labor costs at this stage, we are cautious about their possible effects in the coming quarters. Solid overall enrollment in our core base, as well as the new centers and acquisitions, also contributed to the remaining margin improvement.

At 8 percent of revenue, overhead was virtually flat with the second quarter of 2003, as incremental spending for Sarbanes-Oxley compliance offset the modest overhead leverage we would have otherwise seen. We continue to believe that even as we invest in our infrastructure to support operations and growth moving forward, we can continue to leverage our overall spending over time across this growing base of operations.

Amortization of identifiable intangible assets increased $160,000 from last year, simply reflecting the run rate of acquisitions that have been made since June of '03. We now expect amortization to approximate $1 million for the year -- for the year 2004, as the effects of Child & Co. come into our mix.

The strong financial performance this quarter, and so far this year, has also driven a 30 percent increase in EBITDA -- or earnings before interest, taxes, depreciation and amortization -- which we customarily report to you. Through June 30, it's approximately $28 million, while capital spending has been a modest $6 million. We would expect to see that level of EBITDA continue for the rest of the year, and would also expect capital spending to pick up over the remainder of the year, with total spending projected at 15 to $18 million. It is simply a timing differences for when we are spending those capital dollars from quarter to quarter and even from year to year. Lastly in terms of balance sheet items, we ended the quarter with approximately 45 million in cash.

As usual, I'll end my review of the quarter with a few operating statistics. At June 30, we operated 525 centers, having added 14 and closed 4 during the quarter. The mix remains 60 percent profit and loss and 40 percent cost plus contracts. Total operating capacity approximates 60,600, with an average per center of 116. Our U.S. centers continue to tick up modestly with 128 average capacity per location, while in Europe our centers now average 52 capacity per location.

I do want to talk briefly about the impact of the Child & Co. acquisition, just to give you a sense of how it affects the operating dynamics in the UK and Ireland.

First, the nine centers increase our capacity by 20 percent, as they are on average twice the size of a typical UK Center. Second, these centers, along with the new programs we've added over the last couple of years for clients like Land Rover, Microsoft and Cambridge University, contribute significantly to our goal to rationalize our overhead investment in Europe -- in addition to giving us a significant presence in the Oxford area, and now in Bournemouth. We now operate a total of 85 centers in the UK and Ireland, and remain confident that our investments there will provide solid long-term returns. This new addition is certainly an important step in that direction.

In summary, we're pleased with the strong performance so far this year and are confident that earnings performance in '04 will continue to outpace revenue growth as we sustain our operating leverage.

I'm going to expand just a little bit on the guidance that Dave previewed a few minutes before for you.

Top-line revenue growth is projected for the full year at 15 to 17 percent, consistent with our previous guidance and reflecting approximately 10 percent overall capacity growth. We will be seeing a little bit of a lasting effect in our revenue growth with the acquisitions that we made in Brookfield and the Marin Day Schools management contract last year in the second half.

Secondly, we're looking for operating margin expansion in the range of 50 to 80 basis points for the full year. Dave mentioned the seasonality that we experienced in the third quarter, and then rebuilding again in the fourth quarter. So we tend to see operating margins in the third quarter pull back some from the first half, and then slowly rebound in the fourth quarter as our enrollment rebuilds.

Lastly, we've moved EPS projections up to $1.85 to $1.88 for the full year, with the last two quarters detailing as 45 to 47 cents in the third quarter and 47 to 49 cents projected for the fourth quarter. You can see that seasonality that I alluded to in those figures.

As we pass the halfway point, I'm also going to take the opportunity to go through some of the risks and opportunities that we see in terms of the projections that I just laid out. Let me start with the risks.

First, of course, there is the economy. A slower or stalled recovery impacts enrollment levels and growth; it affects new center openings and it affects the maintenance of client contracts and cost-plus center revenues.

Conversely, as the economy heats up, and how much it heats up and how quickly it heats up, will affect our ability to maintain pricing power relative to labor costs. And we would expect to see that become more difficult as the economy rebounds. Lastly, as we grow, continued rationalization of overhead requires careful decision-making around spending and the priorities of investments to be made.

Looking at the other side of the coin in terms of opportunities, a strengthening economy, of course, could allow us to outperform our estimates for enrollment in both new and mature centers. In addition, a slower economic recovery -- again, the converse -- will help us better control wage increases. And finally, we may have additional opportunities to transition or acquire new centers.

With that, we'll open the call for questions. Mark, we're ready for the first caller.

(OPERATOR INSTRUCTIONS). Jerry Herman, Legg Mason.

A question about the UAW Ford situation. The 26 additional centers, effectively eight of those overlap with where you already are; correct? And then the 18 will be sort of separate and new; is that correct?

Yes. 18 of them are new sites, Jerry. Eight of them are housed in the same location as our -- eight of the childcare centers we manage for UAW Ford. So we view those eight as really expansions to existing sites as opposed to new sites.

And you guys identified sort of the revenue model, or at least the resemblance of a small backup childcare center. How about operationally from a business model perspective, things like revenue recognition and exactly what you're getting paid for at those locations?

What we'll be getting paid for, Jerry, is essentially the management of this variety of programs that the family centers offer, and they do vary location by location. But we will be staffing those programs, staffing a team of people to oversee, manage the schedule and what have you. So it operates in a way that is on the one hand different because it's not early childhood care, but it is serving a much wider array of people. But it's still the same kind of idea as the program management that would be behind a summer camp program or different kinds of enrichment programs that we do in our centers. And the relationship is, clearly, tied in with -- both the UAW and Ford Motor Company is tied in with our existing national staff that serves it. So we see it as a natural extension. It is a management contract, so we are essentially protected in terms of whatever the cost structure ends up being, and we earn a management fee on it.

Can you maybe address the -- I mean, is it a measurable market opportunity in other locations or with other clients?

Jerry, many of the programs that we're going to be running for them in these centers or that we're currently running now starting July 1, we have gone traditionally over time at various centers one or two of these kinds of programs, but nothing as wholistic as what UAW and Ford has put together. So I think there's a question mark as to whether or not other employers will do it as wholistically as what -- meaning, location sites that just do this. But clearly, I think what we'll be able to do is learn from what we're going to be doing here and expand services that we may be able to offer clients for whom we already run sites for. I guess the summary on that would be -- I'm not sure how many independent sites there are out there that will be doing this in the future, but I do think we'll be able to look at this as another opportunity potentially to do more for existing sites that we currently operate.

Building on our core competency.

I'm going to slip in the standard question, Elizabeth, and that's just the composition of maybe either the pipeline in terms of types of clients?

Okay. That's good. I'm glad someone's asking that. We've got it all prepared. I think that what we had arranged with folks was that we will talk about the actual composition and once a year we'll update the pipeline. Let me break it down for you. Financial services is 15 percent; technology clients is 10 percent; healthcare and pharmaceutical is 17; consumer products is 8; industrial manufacturing is 6; government and higher education is 16; and our office park consortium and other is the balance.

Okay, great. Just one big picture item. Dave, are you guys seeing anything on either the legislative front or the macro front that in either way positively or negatively might impact the market opportunity? Any developments?

No developments, Jerry, that we think will have any material impact. I think the same conversations that have been going on at the state level about universal preschool funding continue to go on. But whether or not they would even have any impact on us is questionable, but we are following them closely. Nothing new.

Brandon Dobell, Credit Suisse First Boston.

Thinking about modeling going forward for this year and then in general -- obviously, pretty strong gross margin trends, and with the quarter -- how do we think about the continuation, or the ability of you guys to continue that trend going forward? Should we continue to think about kind of a 20 to 30 basis point expansion? Or as you guys make on of these acquisitions over in the UK for example, do those have a different gross margin profile? I'm trying to get my hands around how to model that line.

I think it's a good question, Brandon, because what we're seeing is in the last couple of quarters growth in the center margin levels that we haven't seen in our history. So I think we feel some caution about sustainability. And with the 50 to 80 basis point improvement this year on top of last year's fairly substantial growth, I think we would be expecting going forward, as you're saying, that sort of 20 to 30 basis points seems doable on a year-over-year basis next year. But we've got to look at sustainability in a longer-term view once we have got, I think, a better handle on how the economy rebounding really plays into the numbers. So the combination of things that are healthy and feed that certainly are all going in one direction, and we've had the positive effect of the acquisitions; we've had good enrollment; we've had good pricing power vis-a-vis the labor markets. And so, as we continue to grow organically and through acquisitions, those things are all factoring in the same way. But we see a little bit of caution.

Is there a difference, maybe a seasonal profile in the UK? You mentioned during Q2 was strongest, obviously (multiple speakers) summer. Does that same phenomenon happen over there? And as that part of this gets bigger, do you see even more pronounced seasonality in your business, or is it going to even out a little bit?

I think, Brandon, that's a phenomenon of our business wherever it is, here or the UK, in that at some point we're graduating our class of preschoolers into elementary schools. So I think that's more of a characteristic of childcare wherever we are. And I don't think it -- it just plays out on whatever scale we get to. It's just going to continue to be a characteristic of the model.

And then more of a prospective question. With, obviously, great cash flow -- not a whole lot of CapEx going on, a lot of cash on the balance sheet -- any thoughts of paying out a dividend going forward to, or doing the Microsoft onetime big cash thing for everybody?

I mean, (multiple speakers) out billions (multiple speakers) --

I think we are -- I guess we're honored to be put in that class, Brandon, but I think we're a long way away from making anybody nearly as rich as that move did. In all seriousness, we consider all our alternatives, given that we do expect to continue to build cash in the model. Currently our focus -- we have good visibility on, we think, on our continued ability to invest the cash back into the growth of the business in ways that make a lot of sense to us. So I would expect that we'll continue to review our options, and dividends will be part of that. But in the near-term our focus is on the opportunities that we see out there to grow the Company in ways that provide really good return on those capital investments.

Howard Block, Banc of America Securities.

Congratulations. Another great quarter. First thing I wanted to do -- is this Child & Company or Child & Co., or --?

They've always used Child & Co, and I think we Americans want to go ahead and make that company. But Child & Co. was there trade name.

Co.

You made reference to the number of, I think, hospital-based centers you have. What was that -- 45?

45 in 22 states.

Do you happen to know what that may have been about, let's say, three years ago?

Not offhand, but we'll circle back to you on that one.

Is that dimension of the business, I guess, growing faster than other dimensions?

Yes. I think -- yes. That dimension is growing fast over the past few years, and I think as I've talked about before, Howard, I think it's not really the economy -- it's not related to the economy one way or another but more related to the issue of a shortage of nurses that's really pronounced out there. Virtually everywhere I travel, when we talk to hospital people, when we go to their conferences, that's an issue that's just out there in most places. And so many hospitals did childcare years ago, and then when managed care came in that sector kind of went on hold for awhile. And just over the past few years it's really blossomed. And as I said, it's made up a good portion of our activity over the past few years. I don't have the exact number to say what that 45 is but we'll get it. I venture to guess that it's a fairly significant jump in the past three or four years.

Are you the largest vendor in, let's call it, that space?

Yes.

Then in terms of the eight UAW centers that are co-located, to give us a sense maybe of the magnitude of these businesses, how would one center think about what that sort of same-store impact could be? Could that business generate -- that center generate 5 percent more over the course of the year, 10 percent more?

It's probably -- it's an element of business that operates like a small backup center. I'm just trying to do the math here. So what is that element of that program within the full-service childcare center? Again, let me just do -- (multiple speakers) try and make everybody (multiple speakers) --

While you're thinking, let me ask David. David, you said something earlier, and I don't want to misquote you, but I thought you said something like -- the most important driver in your business is the recovery of the economy, or something along those lines of. I'm sure you have a script there (multiple speakers). There was something about the significance of an economic recovery to your business, and I --

I don't know exactly what I said. I'd have to circle back in the notes in the script. But I don't think that there's any question that we have been helped by a recovering economy as it relates to -- I think I may have been talking about activity levels, and particularly in financial services, where we're just seeing things that have been dormant over the past few years -- both with new clients and existing clients -- begin to resurface. Some of that stuff, obviously, has not made it yet to the pipeline because it takes a while for that to get committed. But I think that's where the economy is probably benefiting us most.

Okay. And then, Elizabeth, in terms of the contribution in the quarter from Marin Day Care. I think the first quarter number was about 5 million. Do you know what the contribution from Marin Day Care was in the second quarter?

I think that what we've talked about with the contribution for them is more like a million or so a month, so 5 -- if you've got 5 down that would be too high. It's an order of magnitude of 1 million to 1.1 million a month or so, of revenue.

And then also, the SG&A margin did sort of hit that eight percent threshold again. And you mentioned it was probably attributable to Sarbanes-Oxley compliance. Is it safe to say it was 20 to 40 bits (ph) of spending?

Yes. I think that we would have expected to see that it was the 20 basis points had leverage, ex the kind of spending that we are looking at both for the quarter. And then as we forecast the rest of the year, the pace of that spending -- it's not so much that it's accelerating but the estimates are changing as all the audit firms start to come out with their definitive guidance and what they need to do. So I think that's a good estimate, 20 basis points.

Okay. And you don't happen to have any sort of thought on that (multiple speakers)

On the UAW Ford question, (indiscernible) the programs. Depending on the size of the center, it's probably 10 to 20 percent or so.

Okay. Just in terms of the guidance, it sounded as though you were suggesting that there's a bit of a challenging comp in the second half of the year just because of the relatively sizable acquisitions in the second half of '03?

I think I'm alluding to -- again, looking out at the second half we've been at 17 percent revenue growth for the first half, and our guidance for the second half is 15 to 17. So it's showing a lower range on the bottom-end than where we've been for the first half, in part because we have a little bit of comparability lapping going on there.

Mark Hughes, SunTrust Robinson.

To follow-up on that question, you had said maybe 10 to 20 percent incremental with the (indiscernible) family centers. Is that to say it's maybe like 15 to 30 additional seats of capacity, approximately?

It's really not equivalent to capacity in any way, Mark, because it's program services for various people; it's just not akin to a similar capacity number.

Any way to put it in that currency?

Think the currency that we were trying to frame out for you was that it's like a small backup center, so operating in the range of what a 20 to 30 capacity backup center might look like.

Did you give a number for cash at the end of the quarter?

45 (indiscernible).

And then, you talked about CapEx picking up a little bit in the second half. Is that more internal development in terms of new centers, or is that just spending on existing facilities?

The pickup in the second half is more spending on our own facilities than the selected -- we had some office park consortium where we are participating in some of the lease buildout, and so it's discretionary new spending and some refurbishment, because we do have, you know, a fairly large class of centers that have ongoing CapEx needs. But the recurring CapEx for the year is probably less than a third of the overall, that capital spend the rest is new center.

And then the 140 basis points of improvement at the center level -- is it possible to say how much of that might be a mix issue? If you looked at sort of same-center profitability, does that 140 basis points still apply, or is there some change in the composition of the center that also contributes to that?

I wouldn't attribute it to a change in the composition of the centers. The contract mix that we have is fairly similar. I think that it is fair to say that as we have gotten larger as a company and as we have been in business longer, our cost-plus contracts in general are with centers that are larger on average. So the dollars that they contribute are somewhat higher on average. But other than that, I think the improvement in the margin really is attributable to performance across the board and a maturation of the base with fewer new ramp ups, the proportionate effect of ramp ups having lesser of an effect and a drag on earnings. And then the acquisitions and transition to management that contribute right out of the gate, and so they aren't dragging those first couple of years.

(OPERATOR INSTRUCTIONS).

Let me just circle back before the next question to Howard's question on hospitals, which is essentially (indiscernible) a 33 percent increase in that number of childcare centers for hospitals since 2001.

(OPERATOR INSTRUCTIONS). Mark Hughes, SunTrust Robinson.

The transition to management contracts, is there any unusually higher profitability associated with those, aside from the fact that they're mature when you take them over? Are there management contracts that don't have sort of your normal expenses built in, and so they tend to be -- tend to have a higher level of profitability?

No, Mark. I think as a class, those transitions -- the only thing that makes them different is the timing in which they hit us being at maturity versus the ramp up. The characteristics in terms of the margins are similar, whether they're cost-plus or P&L, to what our overall class would be.

Trace Urdan, ThinkEquity.

From the sublime to the mundane, I think I actually am (indiscernible) embarrassed to say I asked this question last quarter as well. But, Elizabeth, it looks like -- I continue to have 41.6 modeled as a tax rate, which I think is something you must have guided us to. And yet you guys keep nailing it right at 41 percent. I'm wondering if there's any kind of update to that number you can (multiple speakers)

41 percent? I think it's 41.8.

41.8. So 41.8 is the number you want us to use going forward? Is that correct.

41.8 certainly is our effective rate. This point in the year we'll have -- we'll continue to modulate that as we need to with the inclusion of Child & Co. and the effects from the UK. But we're expecting to be in that (indiscernible) all intents and purposes.

I see what I'm doing; I've been backing the amortization out of the calculation of the rate, which is why I have something lower. Is it fair to say that the rate in the first couple of quarters is the rate you (multiple speakers)

Yes. We have no reason to change from that.

Avi Fischer (ph), Harris Nesbitt.

A quick question; maybe you mentioned this. Did you talk about the same-center enrollment growth?

Not specifically. We talked in general about enrollment growth in our mature base of centers being 1 to 2 percent uptick from last year, as opposed to a specific same-store growth. We had price increase in the 4 to 5 percent range. And in the mature (indiscernible) centers, 1 to 3 percent. But if you were to include all of our ramping centers, there would be another 1 to probably 1.5 percent uptick as well.

And where do you forecast that going forward?

Overall, we see topline growth coming from enrollment. The enrollment growth element of our revenue growth is in the 1 to 3 percent for a full-year basis.

For that piece of it, Avi.

If there are no further questions at this time, I'd like to turn the floor back to management.

Okay, Mark. Thanks. Thanks to everybody on the call. We appreciate your continued interest. And as always, Elizabeth and I are around with any further questions, and we look forward to either seeing you on the road or talking to you next quarter. Take care.

Thanks.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a great day.