Greetings and welcome to the Bright Horizons Family Solutions Fourth Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Senior Director of Investor Relations. Thank you, Michael. You may begin.

Thanks, Paul and hello to everyone on the call today. With me here are Stephen Kramer, our Chief Executive Officer; and Elizabeth Boland, our Chief Financial Officer. I will turn the call over to Stephen after covering a few administrative matters. Today’s call is being webcast and a recording will be available under the IR section of our website, brighthorizons.com. As a reminder to participants, any forward-looking statements made on this call, including those regarding future business, financial performance and outlook are subject to the Safe Harbor statement included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and are described in detail in our 2021 Form 10-K and other SEC filings. Any forward-looking statement speaks only as of the date on which it is made and we are going to take no obligation to update any forward-looking statements. We may also refer today to non-GAAP financial measures, which are detailed and reconciled to the GAAP counterparts in our earnings release, which is available under the IR section of our website. Stephen will now take us through the review and update on the business.

Thanks, Mike and welcome to everyone who has joined the call. To start this evening, I will recap our 2022 results and outline how our progress this past year positions us well for 2023 and beyond. Elizabeth will follow with a more detailed review of the numbers and outlook before we open it up for questions. I am pleased with the way we finished the year as I reflect on the past few years and in particular, 2022, I feel incredibly proud of all that we have accomplished recovering from the effects of the pandemic. The last 3 years have been some of the most challenging our sector and our business have ever faced, Beginning with the temporary closure of most of our centers in 2020 followed by the unprecedented disruption of staffing to the unpredictable and recurring coronavirus variants that contributed to an uneven recovery in late 2021 and into 2022. In the last 12 months, we made solid progress across our business. We have worked incredibly hard to remain focused on our long-term strategic objectives while also adapting and reacting to this new and dynamic backdrop. Let me highlight a few of our successes. At our core, we are a people business and we have made significant investments in our people over the last 3 years. We made strides in rebuilding staffing levels to accommodate growing enrollment. Our culture has been a hallmark of what makes Bright Horizons unique. In 2022, we saw our turnover rates, which peaked in 2021 return to pre-pandemic levels, alongside an uptick in formerly employed teachers returning to the Bright Horizons family. At the same time, we have continued to become a tech-enabled business and are dedicated to our digital transformation efforts. As an example, in 2022, our My Bright Day app was…

Thank you, Stephen and hello to everybody who has joined us today. To recap again the fourth quarter, overall revenue increased 14.5% to $530 million. Adjusted operating income of $56 million or 10.5% of revenue increased 19% over Q4 ‘21, while adjusted EBITDA of $91 million or 17% of revenue increased 15% over the prior year. We added 3 new centers and permanently closed 6 in the quarter, ending the year with 1,078 centers. Full service revenue increased $49 million to $338 million in Q4 or 14% over the prior year, which was in line with our expectations. Organic constant currency revenue grew approximately 8% driven by increased enrollment in pricing and acquisitions added a further 11% or $36 million to revenue in the quarter. Foreign exchange was a 4% headwind in Q4. Enrollment in our centers opened for more than 1 year, increased mid single-digits with 6% enrollment growth in the U.S. and approximately 1% growth in our European operations, reflecting the ongoing effects of having to limit new enrollments due to constrained availability of staff. Average occupancy levels were roughly flat sequentially as expected and remain in the 55% to 60% range for Q4. Adjusted operating income of $12 million in the Full Service segment increased $5 million in Q4. This gain was driven by higher year-over-year enrollment and improving cost efficiency. Pairing some of this improvement was the impact of a full quarter of the investment we made in teacher compensation this past fall in addition to the continued outsized spend on agency staffing in our international operations. Support received at P&L centers from ARPA government funding program totaled $15 million in the quarter, up slightly from the $12 million that we received in the prior year. Turning to Back-Up Care, revenue grew 15% in the quarter…

Thank you. [Operator Instructions] Our first question is from Manav Patnaik with Barclays. Please proceed with your question.

Thank you. Good evening. I was just hoping for the full year guide, could you help us with what you’re assuming on the revenue side in terms of M&A contribution and also the utilization implied in that 15% to 20% growth for full service.

Yes. So nice to hear you voice Manav. Thanks for joining today. So with respect to the full year, I know you’re right, the full year guide for revenue overall was $2.3 million to $2.4 million with full service growth in 15% to 20%, let me see if I can pull over to what that you have that, Mike, on full service.

Sure. Looking 20%...

What the revenue translation, I think, was question. But as it relates to the overall performance you had asked about utilization. We are looking at mid to high single-digit enrollment growth in the full service group. So that translates to 6% to 8% or so for the full year, a little bit of ramping up as the year goes on. In terms of acquisition growth, our primary acquisition contribution comes from the only about children deal. So that’s in the $70 million, $75 million range in terms of its contribution. And so those are the components of the full service study.

Okay. Got it. The only follow-up that was FX, but on a – I guess, just on a broader basis, in the Back-Up side, you’re adding, I guess, pet care, I’m guessing fits in there. Stephen tape camps you talked about. So can you just talk about like adding those extra services and Back-Up been doing good? Like should that eventually increase the growth rate from this kind of 10% to 15% that is been at?

Yes. So Manav, I think the way to think about the growth rate Back-Up is, yes, our goal is to certainly season the clients that we’ve added over the last several years and then continue to add additional clients. And then the expansion of the use cases, and you mentioned pet care, we had academic tutoring, in addition to that, additional camp use, we absolutely see that as continuing to build out the back-up line of service. Keep in mind, right, that the reason we continue to focus on sort of the mid the 10% to 15% growth rate is really focused around the fact that the numbers get larger. And so therefore, the actual revenue dollar contribution against those growth rates is obviously increasing each year. But we certainly see that those use cases are going to be supplemental to the core traditional use cases that we’ve always had. And we see our clients and their employees really valuing those additional services that we’re providing.

I’ll just circle back, Manav. So just on the FX specifically, it’s more of a pressure in the first quarter, first half of the year, 3 or 3% or so for the year, it’s a modest headwind, but really more in the first half. Only about children like Elizabeth said, is of that 15% to 20% for full service, it’s about 5% or so contribution there to the overall revenue growth for the year in full service.

Got it. Thank you.

Thanks, Manav.

Our next question is from George Tong with Goldman Sachs. Please proceed with your question.

Hi. Thanks. Good afternoon. You mentioned you’re looking at mid to high single-digit enrollment growth this year. Could you translate that into what that would look like from an occupancy rate perspective as it relates to the 55% to 60% that you saw in 4Q?

Yes. Well, as you can imagine, it’s – there is a wide variety across the portfolio. Overall, it would translate to between 60%, 65% utilization on average. We have obviously higher enrollment in our best-performing centers that we talked about last quarter. Those centers are already at pre-coded operating levels and if they march back to their over 70% over 80% earliest on. So the enrollment gain in those centers is more limited because they are already at sort of full run rate. So the growth in the rest of the centers will mainly come from those that are still reramping and are newer, and that’s why we end up in that call it, 60%, 65% for the year.

Got it. That’s helpful. You also mentioned you’re making progress on the labor front, both staffing still remains a constraint. Can you quantify how much staffing is a constraint with respect to occupancy and how you expect labor to perform in the coming year?

Yes. So in terms of the labor front, as I shared, we’re very pleased that. Our retention has returned to pre-COVID levels, which is really important to us because that continuity and consistency of staff really drives the quality in our centers. In terms of looking very specifically at the pipeline of new potential teachers, we are certainly seeing as a result of the wage increases, but also some increased energy on the marketing side. We are certainly seeing more job seekers come to our career stage. We are certainly seeing an increase in the number of applications, and that is ultimately resulting in an increase in the number of net teachers month-on-month. So again, we’re really pleased with the progress that we’re making on that. I would say it still remains our number one challenge as it relates to enrollment. And so as we look across both the U.S. as well as outside the United States, we continue to stay focused on making sure that we can ameliorate that challenge.

Yes. And just the additional commentary, it’s – at one point, we had probably half of our centers that were holding enrollment at some level, and that has diminished. It’s more classroom here in classroom there, so maybe 20% to 30% of centers still have some constraint going on and some have still an acute, it is a tail that changes around the portfolio. But we still are seeing some classroom not being able to be open and/or not be able to take additional staff. And so as much as Steven is citing the progress that we’re making – we’re not all the way there yet, but not – it’s not as straightforward to translate that to this much enrollment as being held because of the variety across the portfolio.

Got it. That’s helpful. Thank you.

Thanks, George.

Thanks, George.

Thank you. Our next question is from Andrew Steinerman with JPMorgan. Please proceed with your question.

Hi, Elizabeth, it’s Andrew. My question is, what is the implied adjusted operating margin for ‘23 and first quarter ‘23 in the guide? And also in the fourth quarter, the adjusted operating margin for full service was notably different than the reported. Could you just go through what’s in there in terms of the adjustment?

Sure. So let me maybe address the last question first. So we have a couple of things that happened in Q4. We had some impairments that we are taking and with respect to centers that either have closed or have had significantly contracted performance, so that was a charge. Let me just get the specific amount here. That was a charge of about $14 million that was added back into the adjusted operating income. And then we also had some minor costs associated with the cyber incident that we – in terms of the examination the brand examination that we’ve had in support costs for that. So those were the few primary events, we in margin and one in overhead. As it makes to looking forward on the overall margin that’s implied, we’ve talked just maybe going through the segments from a Back-Up standpoint, overall, our long-term goal for Back-Up margins to sustain is 25% to 30%. We expect, given the more normalized performance with utilization where we’re delivering the care itself. We have more provider fees in an environment where that’s bouncing back and it’s positive for the type of use, but it does have a little bit of a headwind to the margin. We would be 25% to 28% or so in Back-Up for the year so in the range, but on the slightly lower end of our target range, advisory, really in the 20% to 30% range. We have some ongoing investments in the particular way of yore where we are continuing to modernize those systems and the participant experience. So some variability there, but 20% to 30% in the and advisory group and full service. We are still in a recovery mode here. So overall for the year, we expect to be in low single digits to mid-single digits on the operating margin for full service. The couple of components that go into that are strong performance in our motion roll centers, but the headwind from ARPU being about half of what we had this year, and more challenged performance in our international operations. and then the ramp-up of centers that are still under the 70% is keeping us in those low to mid single digits rather than where we would target long-term to be more high single digits to 8% to 10% over time.

And did you want to make a first quarter comment about operating margins implied in the guide?

Yes. In the first quarter, Andrew, I’d say we started with Back-Up first. Elizabeth said for the year, $25 million to $28 million. First quarter, a little bit on the lower end of there, call it, 20% to 25%. The first quarter is a lower just used quarter overall for us. And so – but again, the lower end there in Q1. For full service, given some of the ARPA headwinds that Elizabeth talked about year-on-year, slightly positive breakeven around that range in Q1 for full service. And then as in the lower end of the full year, the 20% to 30% as I said for the full year is going to be below that probably 10%ish, 15% range. We’re making some investments there to grow that business. So that’s kind of some rough parameters for Q1.

Perfect. Thank you. Appreciate it.

Thank you.

Thank you. Our next question is from Jeff Silber with BMO Capital Markets. Please proceed with your question.

Thanks so much. I wanted to go back to the full service center business. Can you talk about the price increases that are embedded in your guidance and how that compares to the different inflation items specifically wage inflation going forward?

Sure. So as we had talked about last time, Jeff, that we were mostly cycling our price increases in January. And so we have now obviously executed on those across most of the portfolio. So average price increases are in the 6%, 7% range with some spread to a higher end of that high single digits where appropriate. And in some areas, we are more modest than that, but it’s averaged 6%, 7%, and against wage increases, we are expecting a more normalized wage increase this year, but we are still lapping the investment on the wage – the wage step up that we did last year. So overall, this year, the increased average wage will be high single digits to 10% or so. That will be the net effect of those two steps. So we have a right-sizing of the price increase to the wage. Wage would be more like 3% to 4% profit during apples to apples. But again, with the embedded lapping effect, it’s a bit higher. So we are on a track to be making progress against that investment this year and have one more year of those higher, expected higher tuition increases against wages in 2024 to be more fully right-sized in the center economics profile.

That’s helpful. And I wanted to drill down a bit in terms of the staffing constraints you have been facing. Obviously, increasing wages is one way of helping to mitigate that a bit. But can you talk about anything else that you are doing or contemplating not only to attract staff, but to retain them as well?

For sure. So I think that as we had shared in the previous two calls, we have absolutely focused a lot on the candidate experience. And so we are working hard to create a more seamless experience for the candidate starting with a much improved web portal for candidates and then driving to faster interviewing and then ultimately, fast tracking individuals that have either ECE background and/or educational profile that meets our criteria. So I think we are doing a lot in terms of that candidate experience piece. In addition to that, we have been working really hard on onboarding. And so we have what’s called the 100 days apart. And so we are really working on that first step in the new hires experience. And so we are certainly seeing an impact in those first 100 days in terms of being able to get individuals through that first segment of their employment with us and trying to see more of those people continue to stay at Bright Horizons, because as we know and have a long history of one someone has gotten through that first 100 days and really understands and feels equipped to do their job well, they are going to stay with us much longer. And so it’s things like that, that we are really focused on in terms of making sure that on the front end, we are doing everything we can to provide a white glove experience to candidates and then ultimately, once we onboard to make sure that that works well.

Alright, great. I will get back into queue. Thanks so much.

Thank you.

Thank you. Our next question is from Stephanie Moore with Jefferies. Please proceed with your question.

Hi, good evening. Thank you. I wanted to touch – hi there, I wanted to touch on as you kind of evaluate your portfolio on the full service side, maybe for those centers that are underperforming kind of the current utilization corporate average here? And maybe just your appetite for maybe kind of reevaluating, does it make sense for those centers to reopen? So my first question is, has there been kind of an ongoing evaluation process to what are you seeing with some of these underperforming centers that gives you comfort that we are still in this recovery stage? And I will leave it at that. Thank you.

Yes. So first of all, yes, we continue to evaluate that sort of lowest performing cohort that Elizabeth described earlier, the ones that are less than 40% occupied. But to get very specific to the confidence piece, first of all, we are seeing increases in enrollment in that cohort, right. And so we continue to see enrollment into those centers. And so again, in the category of something that is demonstrable, that gives us confidence, I would say that is first and foremost important for us to be seen. I would say the second is that we continue to see inquiries and ability to continue to add staff into those centers. So again, from a forward look perspective, I think that’s also really important. And then the third component, just in terms of timing is as we talked about the ARPA program is going to be sunsetting as its according to the current legislation in September of this year. And so as we start to move towards that and ARPA funding starts to dry up in the sector overall, we believe that some of these underperforming centers will be in markets where there is additional consolidation that happens due to the fact that owners decide that without the ARPA funding, their particular centers are no longer financially viable. And of course, we have the ability to sustain through this period, and we will obviously benefit from that. So I think this will be an interesting year as it relates to continuing to track enrollment and staffing and then ultimately, seeing what the impact of a sunsetting ARPA program is going to do to the sector at large.

Great. No, that’s really helpful. And then just switching gears just Back-Up Care and this is more of a point of clarification. So I think you said early on 1,400 employer partners and third are buying more than one service. So is that assuming that they are on the full service side and either doing Back-Up Care or some other education? Or just can you – I’m just trying to get a sense of your current full service customers that are also Back-Up Care customers as we speak.

Yes. So Stephanie, it’s a mix of – the most common overlaps that we see of those 1,400 clients is clients who are back-up clients, is our largest segment, 1,100 clients, as Stephen said. It’s that clients who have back-up here in full service, our clients have Back-Up Care in our advisory segment or EdAssist or College Coach. And I would say, overall, the largest overlap is back-up here in minimizing. It’s well north of 30%, a third that buy both of those products. On the full service side, give or take about a third, 30% the full-service clients will also have Back-Up Care as well. So, I think that’s part of the opportunity we see over time to be able to grow that mix of clients who have a full service center, but also are able to add Back-Up Care as well.

Great. Thank you so much.

Thank you.

Thank you. Our next question is from Jeff Meuler with Baird. Please proceed with your question.

Yes. Thank you. On the differences in the portfolio in terms of utilization – can you give us any sense like what are the losses on the less than 40% bucket that are weighing down full service profitability and/or the higher utilization centers? Are they operating at the target 8% to 10% operating margin level currently?

Yes. So, starting with the second set, Jeff. That group is – we expect it to be operating at that level in 2023, not fully there. Yet the best performers are still absorbing some of the labor investments. But they are certainly within a range of being at our targeted operating performance. They are the highest enrolled and some of them certainly could be above 10% and we are trying to be sure, we are thinking about things with and without the ARPU funding. So, that’s what I am describing here is that looking at them sort of excluding that benefit that they have now, they are very – they are either in that 10% operating income or within spinning distance of that. In terms of the group that is the sub-40% enrolled cohort, yes, they are losing money. It is a headwind, most – almost any center is not going to be breaking even until they are 50% enrolled or so. So, the – not all these centers are losing enormous amounts of money, but the fact that there are 150 or so centers in that portfolio in 2022 is a headwind to the margin. For them, as we look ahead to 2023 and how we expect them to continue to grow their enrollment, we would look to probably half having migrated out of that sub-40 and into the middle cohort making that kind of progress given what we are seeing over the last couple of quarters. So, we do see them contributing – beginning to contribute by the end of the year, but they are still losing money in the first half for sure.

Got it. And then just on the catch-up to the labor inflation, are you now at the point in – the industry at the point where you expect that going forward, on a fairly sustained basis, your tuition price increases are going to outpace cost-base inflation? And then just anything else you can say on the path to getting back to 8% to 10% margins, I would think on the negative, you still have an incremental $30 million of ARPA runoff after this year. But just any other considerations on the path of 8% to 10%?

Yes. I mean you have touched on it right. We do see pricing power return as we – there is a few reasons for that. One is we have made a significant investment in the wages, and we are focused on being measured on the price increases with the focus on enrollment first and pricing, pricing fairly. But being more continuous with the price increases as the enrollment comes back. We have also seen – we have talked about this, the supply of child care has continued to contract over the last couple of years. And although there has been – what we didn’t predict that the level of support that that Arco would have provided for the industry that has allowed many operators to hang on longer than we would have predicted 2 years ago or a year ago. We do expect that there will be some further fallout from that as the program rolls off. And as it does, both being able to enroll those families in our centers and/or take over the operations of the center and/or be able to acquire quality locations that have heretofore not been interested in selling are all opportunities for us to grow our footprint and our capacity to serve family. So, all of those things will help to keep us in a leadership position and enable us to maintain the pricing power that we have had as a high-quality provider in a market that has potentially less supply.

Got it. And then last one for me, Stephen, I think – correct me if I am wrong, I think when you cite some of the new client wins, those are like centers that are actually in the opening process. And so correct me – one, correct me if I am wrong, on that. But if that is correct, just anything you can say on kind of the bookings trends or the pipeline for new employer-sponsored centers? And if you are seeing any uptick lately. Thank you.

Yes. Of course, Jeff. So, when we cite new client wins on these calls, those are centers that are open, right. So, we announced at the time of opening as opposed to commitment from the client. So, the ones that I mentioned today, for example, are now open and operational and accepting children. So, we take a really conservative approach to sharing those wins, and that’s the same on the back-up in the advisory side of our business where we talk about clients who have launched and the benefits are now available to those client employees. As we look at our pipeline, it’s interesting, the two questions that you asked are actually related, which is I think there is growing concern among employers about the affordability, access and quality of child care, which again, I think as they look at the landscape and as they hear from their employees, about the contraction in supply, about the difficulty of accessing affordable high-quality child care, we certainly continue to see interest in learning more about our services. So, we continue to have good conversations on the new client center side. I would say, at the same time, they are also trying to balance that against what is an economic climate that has a little bit of uncertainty to it. And so what I would say or characterize the pipeline, we see it as a strong pipeline, but we are also making sure that we are being realistic about the timeframe under which our commitments will come through. But certainly, the backdrop right now is certainly heavily weighted towards employers thinking about how they can invest in this area.

Thank you.

[Operator Instructions] Our next question is from Toni Kaplan with Morgan Stanley. Please proceed with your question.

Thanks very much. First, I wanted to maybe talk a little bit more about the $14 million of impairment. It looked like maybe you closed six centers in the quarter because I know you talked about opening three organically. So, I guess how many centers actually, did you take impairment losses on. Is that sort of the full $150 million that you talked about in the lowest cohort, or is it the half that probably won’t get into the mid, just wanted to understand it a little bit better. Thanks.

Yes. So, it’s a good question, Toni. I think the way that the accounting rules sort of govern when you taken impairment has to do with existing cash flows trend over the last few years in the near-term outlook. And so that write-off, that impairment includes right-of-use assets and the underlying portion of fixed assets in a variety of centers, some of which are open and operating and are not on the close list and are not. Certainly, some of that may be in that potential to close because they are more protracted underperformers. But there is no – there is no hard and fast rule, but it’s certainly not covering 150 centers, and it’s not intended to be a same singular approach to all of those that are not yet back to their pre-COVID operating. So, I think you have seen that the last couple of years, we have had some impairments that have come out of COVID because of this and the protracted underperformance is the main driver.

Got it. I wanted to also ask about margins. I know you gave the full service guidance for the year and for the first quarter. But just I want to make sure I understand it right. Fourth quarter, you won’t get the ARPU benefit any longer, and what should sort of the normalized margin be exiting ‘23?

So, we are looking at low-single digit to mid-single digit for full service for the year. You are asking about full service, Toni?

Yes, full service. Yes.

Yes. And so it will – our expectation is we would be improving throughout the year. As you say, ARPU will fall away by Q4, but it would be countered by the improving performance. So, exiting the year similar to that low-single digit to mid-single digit range because we have, say, underlying better performance in the loss of ARPA counteract that. So, the outlook then in 2024 would be for that to be, as Jeff pointed out, the coping with the effect of the remainder of ARPA falling away, but the ongoing cohort improvement and the ability to price another cycle ahead of the labor cost that is now impeded in the overall cost model.

Got it. And then just lastly, back up margins, I know you are expecting to be about 35% in 4Q and maybe even 40%. I guess what happened there that led to a lower margin quarter? Thanks.

Yes. So, as we mentioned, we are pleased with the Back-Up performance. Overall, they would return to our more traditional use care types and we were in the range of what we had guided to for Back-Up for the quarter, but use was – we had this cyber incident was minor. But we do expect there was a little bit of disruption in some of the use that it doesn’t change the overall trajectory. It just was a little bit of a disruption in the quarter. But overall, I think it’s a mix of the type of use that we had. And the other element to this that we are in process of absorbing two similar to the full service side as we see some inflation on the provider network. There are – we engage with a number of third-party providers who support our – the Bright Horizons network. And so some increased costs on that front as we are able to expand the use, had some effect on the margin to see a similar cost structure that would be an element. I think the good news on Back-Up similar to the full-service business is we do have pricing power and are able to continue to take some price increase on those Back-Up arrangements, not at the same level as we are seeing on tuition rate it’s at 6% to 7%. But we certainly see some reasonable cost inflation – price inflation that we are able to get on back up to help offset those costs.

Perfect. Thank you.

Thank you. Our next question will be from Faiza Alwy with Deutsche Bank. Please proceed with your question.

Yes. Hi. Thank you. So, I wanted to talk about the company’s sensitivity to the macro environment at this point. So, many economists are projecting a recession later this year. And historically, I believe there is a demand headwind during recessionary periods. But this time, it seems like – I am curious on your view given your supply constraints to the extent there is a recession, do you think the labor environment would improve? And how do you think about sort of supply-demand factors at this moment in time? What are some of the puts and takes from your perspective.

Yes. So, I think as we think about the macroeconomic environment, I would offer a couple of things. The first is that we would expect that it would have a positive impact on our ability to attract and retain teachers, right, which is again, our largest impediment to taking the full enrollment that we have available to us or enrollment request that we have available to us. I would say that from a demand perspective, you are right to point out the fact that there is real supply/demand imbalance in the market today. And we expect that, that will continue. And I think if we sort of harkens back to The Great Recession of 2008, ‘09, ‘10, I don’t think that people think it will be as deep or severe as that. But even in the midst of what was a very deep recession, while we did see some contraction on the enrollment side, we have the ability to cost manage on the labor side. And so we saw almost no impact from a margin perspective. And so what I would say overall is the market today is really different. It’s even more constrained from a supply perspective. So, while we always think of our business as relatively recession-resistant, we think that given the dynamics that exist in the market today, going into any kind of difficult macroeconomic environment, we should be able to persist quite well.

Great. That’s very helpful. And then just wanted to talk about the international business, it sounds like enrollment is not progressing the way it has in the U.S. in those markets. Is there – sort of how are you planning on addressing that? Do you think it will automatically readjust and progress, or do you plan to make certain wage investments or other type of investments in those markets?

Yes. I mean certainly, what we are seeing, especially in the UK and the Netherlands is that the labor constraints and even more significant than it is here in the U.S. So, availability of labor is even more challenged. In those markets, we do have the ability to use some, what they call, agency staffing, which is sort of third-party staffing. And that comes at quite a premium in terms of cost. And even that is not in plentiful supply. So, the impediments of our labor shortages is impacting enrollment in those markets. And so we have made some wage investments in both the UK and the Netherlands and also in Australia. And the reality is that, that will get us – that has gotten some progress. On the other hand, it really does come down to availability of labor at this point as opposed to even what the price might look like. So, what I would say is we continue to look for signs of our ability to garner more high-quality teachers in those markets, but that is certainly the experience we have had thus far and therefore, the impact on our results.

Got it. And then just last question for me is around the pet initiative. So, I know you had talked about that previously, and you mentioned it on this call. Sort of where are you in that process? Like have you started – do you have a center currently that you have already opened? Is it still in the planning phase? Just talk to us about how we should see that progressing?

Sure. So, the pet care offering that we have is actually through our Back-Up segment that was one of the use types that an employer, eligible employees can elect to use their Back-Up for that same kind of intermittent pet care. So, we don’t have a center of any kind. We are not running directly any kind of pet care doggy daycare type of things. We are partnering with third-party providers to do this for any consumer, and we are doing it through an employer-sponsored benefit. And it is intended to be like other Back-Up on an intermittent basis. So, an employee can use one of their 20 uses or five of their 20 uses for a day of coverage for their pet when they need that on an emergency basis or on unexpected basis.

Perfect. Thank you so much.

Okay.

Thank you. Okay. Well, thank you all very much for participating in the call, and appreciate your time and interest.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.