Bright Horizons Family Solutions Inc (BFAM) 2016 Q3 法說會逐字稿

Greetings and welcome to the Bright Horizons Family Solutions third-quarter 2016 earnings release conference call.

(Operator Instructions)

As a reminder this conference is being recorded.

I would now like to turn the conference over to your host, David Lissy, Chief Executive Officer for Bright Horizons Family Solutions. Thank you, David. You may begin.

Thanks, Bob, and greetings from Boston. Hello to everybody on the call today. Joining me, as usual, is Elizabeth Boland, our Chief Financial Officer. And I'll let her walk through some administrative matters before I kick off the call. Elizabeth?

Hi, everybody. Thanks for joining us today. This call is also being webcast and a recording of it and our earnings release issued after the market closed today are or will be available under the Investor Relations section of our website at brighthorizons.com.

Some of the information we're providing today represents forward-looking statements, including those regarding our expectations for future performance, our business outlook, enrollment trends, our financial outlook for the remainder of 2016 and preliminary views for 2017, revenue growth, operating margins, new client launches, growth, acquisition and operating strategies, timing and impact of specific acquisitions, our credit facility, business segments, foreign currency rates, tax rates, center openings and closings, capital spending, adjusted EBITDA, net income and EPS, as well as cash flow and share repurchases. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially. Factors that could cause actual results to differ include risks related to implementing our growth strategies, client demand, integrating acquisitions, currency fluctuations, and our indebtedness as well as other risks and uncertainties that are described in the risk factors in our form 10-K that we filed for the year ended 2015 and in our other SEC filings. Any forward-looking statements speak only as of the date in which it is made and we undertake obligation to update any forward-looking statements.

The non-GAAP measures that we discuss are detailed and reconciled to their GAAP counterparts in our press release and they will be included in our form 10-Q and filed with the SEC. And it will be available in the investor relations section of our website.

So now back to Dave for the review and update on the business.

Thanks, Elizabeth, and hello to everybody on the call. As usual, I'm going to update you on our financial and operating results for this past quarter, as well as our outlook for the rest of 2016 and also provide you with our initial views on 2017. Elizabeth will then follow with more detailed review of the numbers before we open it up for your questions.

To recap the headline numbers for the past quarter, revenue increased 5% to $384 million, which yielded adjusted EBITDA of $70 million and adjusted earnings per share of $0.49, consistent with our previous outlook range and up 14% from last year. As we previewed in our last call, we experienced a more significant effects headwind related to our UK operations in the third-quarter. This headwind approximates 3%, such that on a common currency basis, revenue growth approximated 8% in Q3 and the growth and adjusted EBITDA and earnings per share would have also been proportionally higher.

Our top line grew $18 million this past quarter, with solid contributions coming from each of our three lines of business. We added 15 full-service centers with highlights that included additions of Wolverine Worldwide here in Massachusetts, the Philadelphia Health and Management Corporation, and Oxford University, along with five new lease/consortia models centers. In our backup and advising businesses, highlights of new client launches included Dignity Health, Southwest Airlines, and the University of Notre Dame.

Our gross margin expanded 50 basis points this past quarter, and the margin performance reflects the combination of factors we've talked about on previous calls, including incremental enrollment in our mature and ramping P&L centers and price increases that average 3% to 4% across the system. Overall, our full-service segment operating margins expanded 90 basis points in the quarter and are up 60 basis points through September, with solid growth and contributions coming from each of our US, UK, and Netherland operations.

In addition to new client centers, we've also opened a total of ten new lease/consortium model centers thus far in 2016, including five this past quarter. All in, we've opened a total of 55 of these centers since the beginning of 2013 and continue to be on track to create significant value in this area. Now that the centers that opened in 2013 and 2014 are further along in their operating maturity curve, their contributions are beginning to offset the losses we incur in the newer classes of centers that are still in the early stages of the ramp up.

We are experiencing some margin headwind from the early-stage operating losses in the most recently opened centers, which has put some pressure on our current results and will do so for the rest of this year. That said, we expect this headwind will naturally diminish as these centers continue to ramp, thereby producing some uplift in full-service margins next year.

Our backup and educational advising segments also continue to expand their respective client bases and breadth of services. We are now serving 750 clients in backup and 275 clients in our advisory services. We expect to launch a number of new clients over the next few months and as such, I continue to be bullish about the future performance of these two segments.

Backup care grew 11% this past quarter and continues to trend up over the first half of the year. On the margin side, we continue to deliver strong results while we absorbed the incremental depreciation associated with the investment and rollout in 2016 of our new operating system, which we previewed at the beginning of the year and had factored into our plan. Our advising business grew 13% on the top line and remains poised to continue to deliver on the growth plan we discussed with you on prior calls.

I'm pleased with the momentum on the sales side, as the overall selling environment continues to be strong. This is reflected in the quality of early-stage prospect pace and the pipeline of centers are in development. We're seeing good progress on the new business front across industries and continue to see most of our activity in the technology, biotech, healthcare, and higher education areas.

On the acquisition front, our strategy continues to be to pursue opportunities that range in scale and geography. Our pipeline remains strong and includes some larger potential strategic opportunities, as well as a good mix of smaller networks and single centers.

Through September, we acquired a total of eight full-service centers this year plus College Nannies and Tutors and are working to complete additional tuck-in deals in 2016 that we expect will put us in line with a plan in terms of numbers of centers that we hope to acquire at beginning of this year. Just yesterday, we closed on a four-center acquisition in the greater New York area, and it's an example of another solid addition to our portfolio and brings us close to our annual target for center acquisitions, albeit later in the year than we had planned when we spoke to you the last time.

Let me move over to our capital allocation and credit strategy. We're currently in the process of amending our credit agreement, attempting to take advantage of favorable credit markets to extend the term of our loan out seven years and lock in favorable rates and terms. And to create access to additional liquidity for strategic purposes, as needed.

We expect that this process will wrap up over the next week or so and between the cash flow we generate in our business, our revolver, and the flexible liquidity, we anticipate securing through our amended agreement, we're now in a strong position to take advantage of the opportunities that may arise as we continue to execute in our growth strategy both here in the US and abroad. As we discussed on prior calls, our first priority remains growth oriented investments and acquisitions and new lease/consortium centers, which you've seen us continue to do this quarter and this year, with the second priority being to enhance shareholder value through our share repurchase program, which we've also continued to execute throughout the year.

So as we look ahead for the remainder of 2016, we now have more visibility into the timing of new center openings, client launches, and acquisitions and we're updating our guidance for the year. When we incorporate the reality of additional currency fluctuation related to the UK pound, our estimation is that FX may create more than a 3% headwind on revenue growth in the fourth quarter.

In addition, when we factor in the impact of timing related to the new lease/consortium models centers, and our updated expectations for contributions from our most recently completed acquisitions, we now expect revenue growth to approximate 7% for the full year, which translates to approximately 9% on a common currency basis. Factoring that all in to our updated outlook for adjusted earnings per share, we anticipate 2016 earnings per share in the range of $2.14 to $2.16.

Before I turn it over to Elizabeth, let me give you a brief outlook on our initial view for 2017. We believe we are well-positioned to continue the positive momentum that we have experienced over the last few years.

While we are not yet providing detailed guidance for next year, based on how we are trending at this point, we're targeting revenue growth for 2017 to be in the range of 7% to 9%, inclusive of continued FX headwind from the pound compared to the first three quarters of 2016. We expect continue to drive strong earnings performance that translates to adjusted earnings per share growth next year in the range of 15% to 20%.

With that, Elizabeth can review the numbers with you in more detail and I'll be back to talk with you during Q&A. Elizabeth?

Great. Thank you, Dave.

So just getting into a bit more detail on the quarter results, the $11 million increase in full-service center business revenue was driven by rate increases, enrollment gains and our mature and ramping centers, and the contributions from the 39 centers that we've added since the end of third quarter of 2015. The FX impact in the quarter approximated 3% as lower pound to dollar FX rates in 2016 compared to 2015 dampen the revenue growth in full-service by over $9 million in the quarter. On a common currency basis, the full-service segment, therefore, grew 7% in Q3, approximately 5.5% organic and 1.5% from acquisitions.

The backup division expanded over $5 million on the top line or 11% and ed advisory services was up $1.5 million or 13% in the quarter. The growth rate can vary somewhat from quarter to quarter based on the timing of new client launches, as well as service utilization levels and the comparable prior quarter's performance. In Q3, gross profit increased $6 million to $92 million or 24% of revenue and operating income increased $3.2 million to $45 million or 11.7% of revenue.

Starting with our smaller segments, the backup and ed advisory services both generated gross and operating margins that are well above what we earned in the full-service business. As a result, top-line growth in these segments contributes to margin expansion over time, even as both gross profit and operating income can vary from period to period, depending on the timing of new business launches, as well as the personnel and technology investments that we make to support the growth and development of these businesses, both of which are earlier on the maturation curve than our full-service segment.

For full-service, performance also remains strong in our mature and ramping classes of centers. As Dave mentioned, operating margins in full-service have expanded 60 basis points so far in 2016, driven by the enrollment growth and mature and ramping centers as well as consistent pricing discipline is strong cost management. The exit from underperforming centers also contributes to margin improvement.

The other factor in this is the class of lease/consortium centers that have recently opened, are still in the ramp-up stage of their growth, and are therefore not yet contributing as fully matured centers. As we've discussed, while these centers create some near-term drag and margin growth during the ramp-up stage, they become significant contributors to margin over time as they generate higher-than-average gross profit dollars per site.

Turning to our other costs in the results, overhead in the quarter was $40 million compared to $36 million in 2015, essentially on plan for the quarter and reflective of our ongoing investments in growth, operations, service delivery, as well as technology. Interest expense was $10.5 million in Q3 of 2016, and we ended the quarter with 3.2 times net debt to EBITDA compared to just under 3.5 turns at December 31 of 2015.

We generated operating cash flow of $165 million year to date, compared to $142 million in 2015 by improved operating performance and working capital. After deducting maintenance CapEx, our free cash flow available for investment in new growth totals $144 million through September 2016.

Under our share purchase program we have also acquired a total of 1.5 million shares for $96 million through September via both open market purchases as well as one block trade in May. By September 30, we operated 940 centers with capacity of 107,800. As Dave previewed our updated outlook for 2016 anticipates revenue growth approximating 7% over 2015 or 9% of common currency basis.

The FX headwind of approximately 2% for the full year is based on current pound and euro exchange rates. As discussed on our last call, the effect has increased in the second half of 2016 with approximately a 3% impact in Q3 and 3.5% expected for Q4. We now also expect add a total of around 40 new centers, including organic and acquired locations, and our current outlook also contemplates closing approximately 25 centers for the year.

We expect to generate adjusted income from operations in 2016 of approximately 13% of revenue, primarily on gross margin expansion. Similar to the FX headwind, we've estimated for revenue growth, we project that the growth rate for income from ops is also about a 2% headwind.

For the full year, we estimate amortization of $29 million, depreciation of $55 million, stock comp of $12 million, and interest expense of around $42 million as the contributions from the slightly lower interest rates that we expect with our amended credit agreement will primarily be realized in 2017 and beyond. The structural tax rate for the full year is projected between 34% and 35% for the full year.

On the cash flow front, we estimate that we'll generate approximately $200 million of free cash flow with $230 million to $240 million of cash flow from ops and around $35 million of maintenance CapEx. We also expect to invest around $40 million in new center capital for centers opening this year and in early 2017. The combination of all these factors, including top-line growth, operating margin performance, the timing of center openings and ramp, and the translation impact of lower FX rates for our UK operations lead to our updated projection that we will generate adjusted EBITDA in the range of $297 million to $300 million for 2016 and adjusted net income in the range of $130 million to $131 million. On the first year basis, we estimate that adjusted EPS will therefore approximate $2.14 to $2.16 for the full year 2016 on around 61 million weighted average shares.

With that, Bob, we are ready to go to Q&A.

(Operator Instructions)

Andrew Steinerman, JPMorgan.

Good evening. I recall your team talking about Bright Horizons' overall margins would benefit as earlier classes of lease/consortium centers reach maturity and we've got a few years of mixes of ramping classes in the lease/consortium centers. Has that inflection point shifted from second half of 2016 into 2017?

I think we're seeing some of the benefits this year, Andrew, as I mentioned, our full-service operating margins are up 60 basis points for the full year but 90 basis points in Q3. So we are seeing the benefit come in.

But there is the ongoing, immediate timing of centers that we opened this year and the ones that we've opened over the last 12 to 18 months, the timing of their ramp has some variability from quarter to quarter effect. And so we do have, we think, some headwinds there that that part of the inflection will come next year.

And is that a change from where you thought the timing would be about a quarter ago? Or is that on track with what you thought the whole portfolio of lease/consortium centers would do in second half and going into 2017?

Yes. I think what we have now is October and November timeframe, the fall enrollment cycle is an important one for us and as we -- a quarter ago, we were looking at how we expected the ramp to continue into the fall. And I'd say we are just seeing it stretching out a bit into the latter part of this year because of the timing of when those centers either did open or have opened this fall. So it's a slight shift and so you are seeing some effect of that this year pushing into next year.

One more time. Did they open later than expected? Or is that how the plan was?

They have opened later than expected, which is different than what the plan was. And so earlier this year, those that had opened a year ago, the trajectory of their ramp is just affected by the natural order of business. We have come through the fall, and we see where enrollment is now. And we have adjusted accordingly to the timing of how they are ramping.

And now they are ramping well, right?

We see them ramping well. We think they are on track and they have an effect because of the concentration of the class is all.

I understand. Okay. Thanks for the time. Appreciate it.

Manav Patnaik, Barclays.

Thank you. Good evening, guys. In terms of the different components of that 7% top-line growth, I just was hoping to re-create that for us for the full year. And I think FX last time you said was about 2%. It sounds like maybe it's half a point more; is that correct?

And then should pricing (inaudible) organic growth ranges you gave us before roughly come down on the high-end? Is that what we should assume?

If I'm following you right, yes, FX is a bit more onerous than we had guided to last time because of the current state of the pound, so it is rough figures. Your half a percent is probably right.

In terms of the remainder price increases, we are seeing them probably in the upper half of our 3% to 4% range, so 3.5% to 4%. And the other components of backup, new center organic count, enrollments, et cetera, is in the same range.

Got it. So the revision on the high-end and top line, even from organic is also just down to what you just said in terms of the timing of opening and later enrollments, correct?

Right.

Okay. And then just in terms of these lease/consortium, I mean, 5.25%, I guess is that a higher-than-normal number? And also just in thinking about the 55 that you open so far since 2013, is there a target? Do you need that to be a 100 number? Or how do you think about that sort of growth aspiration?

Manav, with respect to the 5.25%, I think as I have spoken about in the past, while we have good visibility on center openings going out 12 to 18 months, predicting their opening in the micro can sometimes be challenging. So it's hard to -- there have been other quarters where we've probably had as many that have opened in that quarter, but it's lumpy and sometimes hard to predict.

And given the nature of where some of those centers are in the short term losses associated with them and the need for them to ramp according to a schedule to offset those ramps, when we set out the year or we set out at a particular time to project it, we are sort of projecting where we think it's going to hit. And there are a lot of micro factors that affect our ability to get the center open, licensed, and be on track to where we had budgeted.

Probably, if we look back, we would find other quarters where there have been as many openings, but, for example, we're going to open around 12 this year, we expect, in total, and five of them just happen to be open in the third quarter.

Okay. Thanks a lot.

Trace Urdan, Credit Suisse.

Hey, good afternoon. I'm sure this is going to be more beating of the horse here but you had said earlier that you thought that the revenue growth in this third quarter would be between 5% and 6% with 3% of FX headwinds. It sounds like the FX, at least in this quarter, came in line.

So what was left was a little bit short. Is that also a function of the delay in the opening of the lease/consortium centers? Or is there some other factor that caused a disconnect between what you expected and where it came in?

I think the revenue growth that we had guided to is we're basically in the range of that. I think the element of timing is just timing of all openings, so lease/consortium, everything isn't just the lease/consortium center, but the timing of all center openings will have some effect, as well as the estimates for the fall enrollment cycle timing.

Okay. All right. You are suggesting there's nothing going on other than timing? Is there?

Yes.

And then if I missed this, I apologize, but the benefit resulting from the refinancing, did you size that for us for 2017?

I think it's a little premature to size it, at this point, Trace. I think we commented that the effect will take place in 2017.

We need to finish the process of the amendment itself. It's not completed yet, so when we have that completed, we can guide to it.

Okay. Fair enough. Thank you.

Gary Bisbee, RBC.

Good afternoon. Just one more, I guess, on the center, the full-service centers business. Is the enrollment ramping more slowly once you get one open this fall? Or I thought I heard to say something that might have implied that or specifically only the timing of when you open them?

And the second part of that is just can you give us an update on how the mature centers are ramping from an enrollment perspective? I know you are getting closer to that normalized level over the last year.

Yes. Gary, it really relates to when the centers open, as Elizabeth talked about before, and then what enrollment trajectory you can achieve once they open. When they open later, we are behind the curve, and then you are sort of catching up to where you thought they would be as they play out.

So with respect to your first question, it really comes down to timing. It is not -- just reiterate and say again, we think we have chosen good locations for these centers. We think and we expect them to add good value down the line. So it's short term with respect to that. I'll let Elizabeth comment on the mature base.

The mature enrollment base, we're up about 1% this year, Gary, and so they are continuing, as I think we talked about a bit last quarter. We're continuing to make headway to that sort of targeted high 78% to 80% utilization level, although the closer we get to that, some of the earlier years we had the first couple five percentage points have come back and now we're getting to the small eking out to that top-level again. So 1% is about where we are this year.

Okay. And is it right then that would then put you within a point or two of getting to that normalized 80%?

Yes. We're couple percent -- still a couple of percent to go, but that gain curve is flattening out.

Okay. And then the timing of the openings aside this quarter, if we just think bigger picture beyond that, the center-based business has seen revenue grow more slowly the last two years in total relative to much of what you'd done prior to that, the recession aside. And I realize you haven't done the bigger chains since you had a couple of big ones a few years ago.

But can you just give us an update on maybe how you think about growing that business over the next few years? And is there opportunity for more aggressive M&A? Should we think the last two years of a bunch more of the onesies, twosies is realistically what you are at the this point? And then also just any update on how you think about the potential and opportunity to enter other markets? Thank you.

Gary, I will try to get through each of them one by one. With respect to center growth, we see steady growth on the organic side between the employer-sponsored centers and the lease/consortium centers,. We feel like the pipeline is there to provide for the growth outlook, the overview that we gave you for 2017 is somewhat informed by our pipeline and feel good that that is on the organic side trending in a good direction.

With respect to acquisitions, you are correct to point out that our larger strategic acquisitions have been lumpy because we've had a year where we had a couple of them hit once and then it becomes a little bit lumpy from year to year. I will tell you that, as I commented in my prepared remarks, that the pipeline is in a good place and we feel good that there is a mix of larger strategic opportunities combined with the sort of more bread-and butter-acquisitions for us, which are the smaller few center operators.

So when and if we can complete something that's larger remains a question mark. When and if we do, it will be because we've been able to find something we think will be a great value creator for us and it will make a lot of sense, we hope. So we continue to push toward that in conversations but it is sort of unpredictable.

When we offer our fuller guidance, we do so really not counting on something that's much larger than what our typical acquisition portfolio looks like in an average year. But they are still out there, and we will see where it takes us is the answer to that question.

And I think your third question was whether or not we would expand to other markets. And the answer to that is we remain active in discussions to continue to research a handful of markets around the world that we think might have an opportunity for us to play a role in the future. And while there is -- I may have said this in the past and still remains true, there's nothing on the near-term horizon that I can point to right now.

But I do believe there will come a point where we will decide that it makes sense for Bright Horizons to enter a new market. And more than likely, the manner in which we would do that would be acquiring a beachhead in the market like we have done in several other markets that we've entered. We continue to nurture relationships and research markets, and obviously over time, we will see where that plays out.

Great. Thank you.

Jeff Silber, BMO.

Hey, good evening, guys. It's actually Henry. I just had a question on the refinancing. Should we expect you to be adding to your essentially liquidity or your capacity in terms of your debt levels?

So what we are is we're in market now with mainly an amend and extend arrangement and looking to have the opportunity to draw on liquidity if we choose to for a period of time. So it's opportunistic but not opportunistic to be able to have some structural debt and we can draw on it if we have a need, but otherwise we are not adding without a need.

Got it. And in terms of using M&A, can you just update us on how you are thinking about your overall capacity in terms of taking on any additional leverage for M&A purposes?

Yes. I think that -- as I commented earlier -- I think we have, if we have an opportunity that presents itself, from an acquisition standpoint, we feel good about the access we have to fund that, whether that's through the cash flow we generate, our revolver or as Elizabeth said, the flexible liquidity that we will have through the new amendment.

So we feel good about the flexibility we have and we'll see how things play out. But as she commented, we're not taking on debt for the sake of taking it on. We will take a new debt if we feel like we need to, that we need it for strategic purposes.

All right. Thank you so much.

David Chu, Bank of America.

Good evening. Can you speak to fall trends and how they perform relative to expectations? Maybe you can allude to which age groups perform better or worse than expected?

Sure. As many of you know, we have a year-round service that we provide but we still have some cyclicality that comes in where families of older children withdraw over the summer and then we're rebuilding enrollment into the fall. That's just by way of backdrop. And so from a fall enrollment standpoint, I think we feel like trends are positive.

We don't really comment on enrollment trends by age group, but other than it tends to be certainly in our lease/consortium centers -- the newer ones that we're opening -- as we've said, we tend to enroll younger children first and grow our own preschools. But we've seen pretty consistent enrollment across all age groups, I would say, as we're going through the cycle.

It's been where we have seen -- we have talked about the price increases. They have also come through in the fall, and we've tended to be, as I've said, about 3.5% to 4% on average, so at the higher end of the other the range that we would have targeted. That has been a neutral effect on the enrollment levels.

Okay. So is the growth overall pretty comparable to last year?

Yes. I think that's the right way to think about it.

Okay. And just around backup care. You guys saw nice lift. Anything to point out that led to the acceleration? It sounds like you guys maybe signed handful of new clients?

I think, as we had talked to you about in the past, we had anticipated that that would be the case -- that we would have a lift in the second half of the year. And I think we are seeing that happen and we expect that to continue.

So it really comes down to the addition of the timing of new client launches, the ability to have our existing clients want to purchase more, and when they do that in the year, and use of the service leads to that. So we had -- I think we had told you that we anticipate that that would happen on the second half and we see that playing out.

Okay. And then just lastly, can we get updated on Brexit? I'm not sure if you have anything to add, but have you guys at any conversations with clients that suggest that some firms will be relocating out of the UK?

Really, there has been no conversations directly with anybody, any clients around that. It's sort of a big picture issue, I think, that could be used to be discussed, but really, from a practical perspective, we have not any business-related issues related to Brexit.

I will tell you that in the UK, different than the US -- other than currency, by the way, I should say. That's the obvious effect that it's had on us, but I mean direct in the UK to your question. But I will tell you that in the UK, our business model is less reliant on individual employers, so we have fewer single employer-sponsored centers in the UK and more consortium/lease model centers because of the way the government support works for child care in the UK, as we have discussed in the past.

So in many ways, our risk is a little more diversified with respect to companies themselves moving out and thus losing a center because of that because we just have so few centers that are really aligned with one employer for whom that would matter.

Great. Thanks, Dave. That was very helpful.

Thank you.

Jeff Meuler, Baird.

Thank you. Good afternoon. Can you just remind us the roll out of the new operating system for the backup care business? What's the timeline of that and how's it going?

Yes. We are -- it is going well. We are in the process of just outlining what it will help us do. It is essentially a technology software platform with mobile capability that essentially allows us to take large data sets from our client partners, have them populated into an application that then allows us to, with more agility and speed, match up the users of the people who desire backup care with where we have space available and so getting those matches to happen quickly and what the parent is looking for.

We have it rolled out in part and are on track to continue that over the next several months. And so I think that's essentially finishing out the rest of this year and is there any other color Dave?

No. I think that covers it.

So you kind of go employer by employer and you have some of your employers live in the systems working; is that accurate?

Yes. We do role it out employer by employer, Jeff. That is right.

Some of it comes down to their needs versus our needs too.

Got it. And then I understand this is preliminary and high-level, but the 2017 the preliminary outlook that you provided -- does it incorporate the refinancing savings and then some assumed normal level of tuck-in acquisition and share repurchase, but none of the larger strategic things that you are looking at?

Yes. I think, we haven't, as I said earlier, included the impact for the refinancing because it's premature to do that, but I do think that we have assumed a normalized level of acquisitions like we typically do. I think our run rate is somewhere between 12 and 20 center acquisitions, the equivalent revenue and earnings on average what we have seen.

That's no different than the way we've given views on upcoming years at this stage in prior years. Obviously, as I said earlier, it doesn't include something much larger and that's because we don't have sight on that yet.

It wouldn't have an assumption around share repurchases either.

And then just finally, just to confirm the ed advisory is still good growth, but decelerated, that is just timing related from your perspective?

Yes. There's no difference in our view on the growth of ed advising, and there is some quarter to quarter variability. There is some comp based on when clients are added last year at this time and when they are added now and their use levels in the service. It's going to move around a little bit but there is no change to our view for that business.

Got it. Thank you.

(Operator Instructions)

Gary Bisbee, RBC.

I just wanted to follow-up on the question about the preliminary 2017 comment. Did you just say that the 15% to 20% earnings-per-share growth -- or 16% to 20%. I actually didn't hear what you originally said, but did not include benefit from refinancing so that would be incremental if, in fact, it does result in a lower interest rate?

Yes. It was a 15% to 20% range, Gary, and we are pending a bit more visibility and all of that.

And I guess here's a perspective in which I ask. Maybe I'll just ask it directly. Do you think there's more work to do to get to that type of earnings growth today looking forward at 2017 than maybe one of the last few years when you gave an initial read?

I guess the reasons I asked that is obviously the FX drag looks like that's going to continue as a bigger headwind. There hasn't been a huge amount of M&A this year. The margins look like they are expanding a little more slowly maybe than previously expected, though maybe that reverses next year. But just feels to me like there might be some heavier lifting to get there, relative to where you've been at this point in prior years.

Is that fair? Or are there some reasons that you are very confident that the margins are quite strong next year or something like that that would make that not accurate?

I think, Gary, as you know, we have -- when you look at it over course of a year, we have reasonable visibility into the carryover effects of the things that we know about in terms of trends this year and how we think they're going to play out next year. We have a reasonable view on trends and conversions on the new client side and new center side, centers under development, those kinds of things. We always take a view on acquisitions that is informed by not only the pipeline but what our past experience and don't get too far over our skis on that, take a reasonable view but that obviously has to be converted because it's not things that are already teed up.

So I would say that we have a view that we gave you that we think is consistent with the way we've run this business for a long time and the visibility that we've always enjoyed. And that as we've commented before, we have a deliberate strategy around our lease/consortium model centers, that if they add this sort of timing issue that we talked about before and some headwind, that's where we are now, and we have a view on where we think that trends into 2017 at this point.

So I would say we are offering the view that we have now, and I don't think of it as we have to work harder or less harder. We always have to work hard to deliver on these results, always have. But I don't really see it as out of the ordinary of what we have done historically.

I think, Gary, you do point out one thing that I will mention because I'd say this is a different condition than we were all maybe thinking about a year ago, and it's not about the political -- it is not about election, but it is about where interest rates may go. The plan mixture does not contemplate a major shift in interest rates, and what we guided to there, the 15% to 20%. If interest rates rise much more substantially and we do have a variable rate term loan, so we'll have visibility to be able to reguide to that, but that is one variable that I just want to point out.

Great. Thanks. I appreciate all the color.

Andrew Steinerman, JPMorgan.

I just wanted to make sure I understood the 7% to 9% 2017 growth rate. That's including FX, I believe, and so my question is what would be the constant currency equivalent to the 7% to 9%?

I don't have that right in front of me here, Andrew. Sorry.

No problem. And then my last question is I think to go from 7% to 9% to the 15% to 20%, you're talking about an above average margin expansion year; isn't that correct?

I think that our view is that in 2017, yes, we would be in the range of the 75 to 100 BPS of operating margin that we have talked about being the level that incorporates contributions from the lease/consortium centers and then continued ramp in our -- or enrollment gain in our mature base that we're still eking out a bit more than normalized level. That would be what we would be looking at for 2017?

Right. And just go back to the first question, the 7% to 9% includes FX headwind, right? That's a reported basis?

Yes.

Okay. Thank you.

Yes.

Thank you. There are no further questions at this time.

Okay, Bob, thanks. And thanks to everybody for joining us on the call, and as always, we are here as needed with questions and seeing many of you on the road in the coming months. Thanks.

Thanks, everybody.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.