Bright Horizons Family Solutions' (BFAM) CEO David Lissy on Q2 2016 Results - Earnings Call Transcript

| About: Bright Horizons (BFAM)

Bright Horizons Family Solutions, Inc. (NYSE:BFAM)

Q2 2016 Earnings Conference Call

August 3, 2016 5:00 PM ET

Executives

David Lissy – Chief Executive Officer

Elizabeth Boland – Chief Financial Officer

Analysts

Trace Urdan – Credit Suisse

Jeff Meuler – Robert Baird

Manav Patnaik – Barclays

Sara Gubins – Bank of America

Jeff Silber – BMO Capital Markets

Andrew Steinerman – JPMorgan

Operator

Operator

Ladies and gentlemen, we're really sorry for the inconvenience. We're ready to begin. Please go ahead, Mr. Lissy.

David Lissy

Okay, Gerry, and sorry, everybody, for that. There was a little technical disconnect between us and the operator. But, anyway, greetings from Sunny Boston. And joining me on the call today is Elizabeth Boland, our Chief Financial Officer, as usual, and she'll starts us off with a few administrative matters. Elizabeth?

Elizabeth Boland

Thanks, Dave, and hi, everybody. Thanks for joining us today on the call, which is also being webcast. A recording of this call and our earnings release, which was issued after the market closed today, are or will be available under the Investor Relations of our website, at brighthorizons.com.

Some of the information we're providing today represents forward-looking statements, including those regarding our current expectations for future performance, our business outlook, enrollment trends, our financial outlook for Q3 and the year, revenue growth, operating margins, growth acquisition and operating strategies, our business segments, foreign currency rates, tax rates, center openings and closures, capital spending, adjusted EBITDA, net income and EPS, and 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 the other risks and uncertainties that are described in the Risk Factors set forth in our Form 10-K for 2015 and in our other SEC filings. Any forward-looking statements speak only as of the date on which it's made, and we undertake no obligation to update you on any forward-looking statements.

The non-GAAP financial measures we discuss are also detailed and reconciled to their GAAP counterparts in our press release, and they will be included in our Form 10-Q, when filed with the SEC, and be available in the Investor Relations section of our website.

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

David Lissy

Thanks, Elizabeth, and hi to everybody again, who joined us today. As usual, I'm going to update you on our financial and operating results for this past quarter as well as the business outlook for the rest of 2016. Elizabeth will then follow with a more detailed review of the numbers. And then, together, we'll be back with a Q&A at the end.

So, first, let me recap the headline numbers for the quarter. Revenue increased 9% to $402 million, and adjusted EBITDA of $81 million was up 8%. Adjusted net income of $37 million yielded adjusted earnings per share of $0.61, up 15% from last year. This past quarter, we continued to experience about a 1% foreign exchange headwind, so that, on a common currency basis, revenue growth would have been 10%, and the growth in adjusted EBITDA and EPS would have also been proportionately higher.

Our top line grew $32 million in this past quarter, with solid contributions coming from each of our three business lines. We added five full-service new centers, including new centers for clients like the Hertz Corporation, Burns & McDonnell Engineering, and our fifth location for Centene, this one in Ferguson, Missouri.

In our backup and educational advising businesses, we recently launched service for new clients that included Cabot Corporation, the Lincoln Center for the Performing Arts, Hackensack University Medical System, and the Nielsen Companies.

Our gross margin expanded about 10 basis points this past quarter. And the margin performance reflects the combination of factors that we've talked to you about on previous calls, including positive enrollment trends in our mature classes of P&L centers and price increases that average 3% to 4% across the system.

Our international businesses are also performing well, as the U.K. and the Netherlands continue to deliver solid growth in contributions in the quarter. Overall, our full-service segment operating margins have expanded 50 basis points through June, right in line with our plan.

As we had anticipated and we explained to you last quarter, the timing of opening dates of our new lease consortium model centers causes some lumpiness in quarter-to-quarter comps. You may recall we opened a cohort late last year and have since opened five more so far this year in 2016.

Overall, this strategy is well on track to create significant value as the centers that have opened since 2013 are doing well. We're still experiencing some margin headwind from the early stage operating losses in the most recently opened centers.

However, as the contributions increase from each maturing class, they began to offset the losses from the newer classes of centers. As we told you last quarter, we expect to continue to see this short-term headwind diminish in the back half of 2016, thus producing some uplift in margin expansion for the full year.

Our back-up and educational advising segments also continued to expand their respective client bases and breadth of services. We're now serving over 700 clients with our back-up services as well as 250 clients with our ed advising services. The outlook for the rest of 2016 and beyond remains very positive, with strong interest from prospective new clients, as well as expanded use of the services from our existing client partners.

As we've talked to you about in the past, the timing of new client launches in these segments and the periodic investments that support the service delivery can cause some quarter-to-quarter variability, which you see in the results for these businesses in first half of this year. For back-up, for the full year, we remain on track to grow in line with the plan that we laid out at the beginning of the year in the low-double digits.

On the margin side, as we discussed with you last quarter and we factored into our plan for the year, we're rolling out our new back-up operating system, including mobile capability, which adds some depreciation costs compared to prior periods. Our Educational Advising businesses grew 23% on the top line this quarter and as we previewed last quarter, this segment remains on track to generate top-line growth in the neighborhood of 20% for the full year.

We continue to be very excited about the breadth and quality of our service offerings in the market. The combination of our core center-based care with back-up solutions and ed advisory services create a powerful suite of solutions for employer partners. Overall, for 2016, we are pleased to have delivered a strong first half of the year, right in line with our plan and to would be well positioned to continue to execute in the back half of this year and beyond.

So turning briefly to the growth outlook, our core business continues to progress with enrollment steadily increasing in our mature base of centers and our newest classes of lease consortium models ramping up on plan. The selling environment for both new clients and cross-selling of existing clients also remained strong.

This is reflected in the quality of our early-stage prospect base, in our pipeline of new centers under development, and in our new client launches ready to come online in the back half of this year with back-up and ed advising. We are seeing good progress on the new business front across industries and continue to see more activity in the areas of technology, biotech, healthcare, and higher education.

On the acquisition front, we have a good mix of smaller networks and single-center opportunities in active discussions, both here in the U.S. and in Europe. We completed one three-center transaction earlier in the year and are working to complete additional deals in the back half of this year that we expect will be in line with the plan that we laid out to you in the beginning of the year.

This past month, we acquired College Nannies & Tutors, which has been a long-standing back-up network provider of ours, providing in-home care through its network of more than 100 franchisees across the country. While not material from a financial perspective today, this addition offers us an opportunity to continue to improve the depth and quality of our back-up suite of solutions and solidify our position as the leader in that area.

One other area I wanted to touch on today relates to our capital allocation strategy. As we discussed on prior calls, our first priority remains growth-oriented investments and acquisitions and a new lease/consortium centers. The second priority is to enhance shareholder value through our share repurchase program, which we continued to execute on this past quarter, both through some modest open market purchases and through one block trade in May.

With the repurchases we've made to-date, we've largely consumed the previous plan that had been in place. Therefore today, we're announcing that our Board has approved and authorized a new $300 million share repurchase plan, which will enable us to continue to execute on this strategy going forward.

Before I turn it over to Elizabeth, let me update our outlook for 2016 results. We are essentially reiterating our prior guidance from an operating perspective. However, we are now incorporating the reality of the currency fluctuation related to the UK pound foreign-exchange rates.

Our estimation is this may create approximately a 3% headwind on revenue growth in the back half of 2016. So when we factor that in, we expect to see revenue growth for the full year in a range that approximates 7% to 9%. Factoring that down to adjusted earnings per share, we anticipate full-year 2016 earnings per share in the range of $2.17 to $2.20.

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

Elizabeth Boland

Thank you, Dave. So to get into a bit more detail on the results for the quarter, the $26 million increase in the full service center business revenue was driven by rate increases, enrollment gains in our mature and ramping centers, and contributions from the 46 centers that we've added since Q2 of 2015. As we've been reporting over the last year or so, we saw some modest impact from FX in the quarter. Lower Pound and Euro FX rates in 2016 compared to 2015, therefore dampened the revenue growth in the full-service segment by approximately $4 million or just over 1% in the quarter.

On a common currency basis, the full-service segment therefore grew 9.5% in Q2, approximately 6% organic and 3.5% from acquisitions. The back-up division expanded over $3 million on the top line or 7%, and ed advisory services was up $2 million or 23% in the quarter. The growth rates can vary somewhat quarter to quarter based on the timing of new client launches, the service utilization levels, and the comparable prior quarter's performance.

In Q2, gross profit increased 8.5 million to 104 million or 26% of revenue and operating income increased 4.4 million to 57 million or 14% of revenue. Starting with our smaller segments, the back-up and ed advisory services – as a reminder, both generate gross and operating margins that are well above what we earn in the full-service business.

As we've discussed on prior calls, the top-line growth in these segments will therefore contribute to margin expansion over time; although both the gross profit and operating income can vary from quarter to quarter depending in part on the timing of the investments that we are making in technology as well as the personnel that support these growing businesses.

On the full-service side, performance also remained strong in our mature and ramping classes of centers. Enrollment in the mature class continued its steady pace of expansion that we've seen since 2011 with a 1% increase in Q2 of 2016.

Operating margins in the full-service segment have expanded 50 basis points so far in 2016, driven by the enrollment growth, our consistent pricing discipline and strong cost management. The exit from underperforming centers also contributes to margin improvement.

In addition, the class of newer lease consortium centers that have recently opened are still in the ramp-up stage of their growth; and although they are not yet contributing as fully mature centers, we are beginning to realize incremental contributions from these centers. As we've discussed on prior calls, while these centers create some near-term drag on margin growth during their ramp-up stage, they become significant contributors to margin over time, as they generate higher than average gross profit dollars per site.

Turning to other costs in our results. Overhead in the quarter was $41 million, which compares to $37 million last year and is essentially on plan for the quarter and includes the ongoing investments we have in growth operations and our service delivery and technology.

Interest expense was $10.3 million in Q2. And we ended the quarter at 3.2 times net debt to EBITDA compared to just under 3.5 turns at December 31 of 2015. The structural tax rate of 35% in Q2 of 2016 is based on the applicable rate for our projected full year 2016 operating performance and is roughly consistent with the structural rate from 2015.

We generated operating cash flow of $147 million year-to-date compared to $115 million last year on improved performance and working capital. After deducting maintenance CapEx, our free cash flow totaled just over $130 million for the year-to-date.

As Dave mentioned, we've been active in our share repurchase program, and we've repurchased a total of 1.5 million shares for $95 million year-to-date through both open market purchases and a block trade.

Now, to quantify our usual quarter-end stats. At June 30, we operated 935 centers with a capacity of 107,000. Dave previewed our outlook for full year 2016. And just to reiterate some details of that, the revenue growth approximates in total 7 to 9% over 2015. The growth breaks down as follows: Organic growth on a common currency basis approximates 8% to 10%, including the 3% to 4% price increase; 2% to 3% from growth in enrollment in our mature and ramping centers; 1% to 2% from new organic full-service center additions; and 1% to 2% growth from our back-up and ed advisory services.

On top of that, acquisitions are projected to add approximately 3% in 2016 for the full year, including the lapping effect from midyear 2015 transactions. Offsetting these increases are the effects of center closings, which approximate 1.5%, and the projected reductions from FX rates. For the full year, we expect FX headwind to approximate 2% based on current pound and euro rates.

However, the effect will be disproportionately weighted to the second half, with approximately 3% impacting Q3 and Q4. We now expect to add a total of 40 to 45 new centers for the year, including organic and acquired centers. And our current outlook also contemplates closing 20 to 25 centers. We expect to generate adjusted income from operations in 2016 in the range of 13% to 13.25% of revenue, primarily from gross margin expansions. Similar to the FX headwind we have estimated for revenue growth, we project an income from operations growth will also have about a 2% headwind – the growth rate will have a 2% headwind – the growth rate will have a 2% headwind.

For the full year, we're estimating amortization in the range of $29 million, depreciation of about $55 million, stock compensation of around $12 million, and interest expense of $42 million, assuming continued 4% to 4.5% borrowing rates on our term loans. Again, the structural tax rate is projected at 35%. We also estimate that we will generate $235 million to $245 million of cash flow from operations and approximately $200 million of free cash flow, net of projected maintenance CapEx in the range of $35 million to $40 million.

We 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 leverage, and the translation impact of lower FX rates for our UK operations, lead to our projection that will generate adjusted EBITDA in the range of $302 million to $306 million for 2016 and adjusted net income in the range of $131 million to $133 million.

On an earnings per share basis, we estimate that adjusted EPS will therefore approximate $2.17 to $2.20 for the full year on approximately 61 million weighted average shares.

Looking specifically to Q3 of 2016, we now project top-line growth in the range of 5% to 6%, including the approximate 3% FX headwind. Our outlook for adjusted EBITDA approximates $70 million to $72 million and adjusted net income is in the range of $29 million to $30 million. With about 60.3 million shares outstanding, this translates to adjusted EPS in the range of $0.49 to $0.50 a share for the third quarter of 2016.

So with that, Jerry, we are ready to go to Q&A.

Question-and-Answer Session

Operator

Thank you. At this time, we will be conducting the question-and-answer session. [Operator Instructions] The first question is from Trace Urdan, Credit Suisse. Please go ahead.

Trace Urdan

Hey. Good afternoon.

David Lissy

Hi Trace.

Trace Urdan

I wondered – just starting maybe with Brexit. Obviously, you described the currency impact precisely for us, so thank you for that. Any other maybe operating impact that you might anticipate at this point? Do you have a sense of whether your business has been impacted at all as a result of the Brexit vote?

David Lissy

Trace, at this point, the UK – still, the fundamentals are strong. We are pleased with the results. And based on what we can see for the remainder of this year and beyond, other than the currency fluctuation, we are not seeing much difference. So, we will be watching, of course, as things play out, as everybody will. But based on we see now, at least for the back half of this year, we are not seeing any change in our outlook.

Trace Urdan

Okay. And then David, I wonder if I could also ask you for maybe a little bit more elaboration on the College Nannies acquisition? You said they were sort of a long-time, sort of vendor back-up supplier for your back-up care business. What is it -what did you acquire exactly? Are they just centers like the ones that you operate or is it something different?

David Lissy

Well Trace, our back-up business is delivered, again, mostly through centers, but also through in-home care provision when center care isn't either preferred or available in an area or for sick care or for other types of care where centers aren't viable. So we have long had a preferred provider network of high quality groups around the country to provide that for us. And we met College Nannies and Tutors many, many years ago when they were first developing and have sort of worked in close partnership with them over the probably eight, nine years that we've been together. And as they were contemplating their future, we just felt like it made sense to join forces.

It allows us to have a little more togetherness in the delivery of our back-up care service, in that they are our largest in-home care provider across the country. And so we thought it made a lot of sense from a lot of perspectives. What we acquired specifically – they are a franchise operator. So they have franchisees that operate in a variety of different markets across the country. So we acquired the franchisor of that business as part of this transaction.

Trace Urdan

Okay. I know you said it wasn't material, so I don't want to obsess on it. But I am interested in it just from the business model perspective. So the franchisors operate their on networks of in-home folks within certain geographies?

Elizabeth Boland

So the franchisees, not the franchisor – the franchisee employ and operate a network of caregivers in local markets – very localized markets. So as you can imagine, the delivery for nannies and other services is very local. And so the model, which we like, really has somebody locally operating it from a quality perspective. But we're not employing those caregivers, they are employed by the franchisee and we own the franchisor.

Trace Urdan

And would you anticipate expanding that model?

Elizabeth Boland

Yes. Well, we do believe thing – we do believe there's growth opportunity. I think they had a growth plan in place and we're going to continue to support. They've got a great team led by the entrepreneur who is joined – who founded it if it's joining us. And we think that they've got some good growth, they had some good growth already sort of in the pipe and we're going to support that. And we will continue to think about what other models make sense to bring to our corporate offering, which is really what we bring to the table. We have the ability to think about how these services can best be offered in the context of what an employer might find value in. And I think we'll continue to think about that as time goes on.

Trace Urdan

Okay. Fair enough. Thank you. I'll let you move on.

David Lissy

Thank, Trace.

Elizabeth Boland

Thanks, Trace.

Operator

[Operator Instructions] The next question is from Jeff Meuler, Robert Baird. Please go ahead, sir.

Jeff Meuler

Yes, thank you. On the back-up care business, can you give us any sense of the breakdown in terms of the growth algorithm between increased volume at existing clients and bringing on new clients. And then I guess how much does pricing contribute? I'm not looking for a quarter; I'm looking for kind of a longer-term mix of growth drivers.

Elizabeth Boland

Yes, so roughly half, maybe 40% or so, from existing and 60% from new, depending on the timing of when they launch, Jeff, is how the new client breakdown would come out. We also have some modest price increase in there in the same range as we see in full-service, but the elements are in that context.

Jeff Meuler

Okay. So can you just help me understand a little bit better in terms of the sequencing of the growth this year? It sounds like you have some new clients that you signed on. But they for some reason are getting implemented in a way that's a little bit more back-half heavy this year? Or what's going on in terms of the confidence in the full-year back-up care growth?

David Lissy

Yes, I think the first thing is what you just said. As Elizabeth just mentioned, 60% to two-thirds of the new growth that comes in is from the launch of new client contracts. And we just have a year where more of that is back weighted and that's what's causing some of the quarter-to-quarter variability, Jeff.

Jeff Meuler

Okay. And then just finally, the back-up care or the new operating system that you're implementing, other than having mobile capabilities, any other callouts in terms of how it will change the interaction with you and your client, or your clients' client, or your clients' employee?

David Lissy

Well, I think like any operating system, it will bring a lot more intelligence to the business. We would hope in the end more efficiency to the way we deliver. The business has enabled at least initially either via a contact center contact with a consultant or online in order to arrange care in order to find out about the service. And like anything when we've grown pretty quickly over the years and we outgrew our technology capability and feel like the system that we needed to invest in is one that sets us up for the future. We think mobile capability and really more online sort of self-service delivery capability, has the advantage of both pleasing our customers and what they're looking for. And also I think making us more efficient from an overhead perspective in the future.

Jeff Meuler

Is a significant portion of the requests coming through the contact center as it currently stands?

David Lissy

Yes.

Jeff Meuler

Okay. Got it. Thank you.

Elizabeth Boland

Thanks, Jeff.

Operator

The next question is from Manav Patnaik, Barclays. Please go ahead, sir.

Manav Patnaik

Yes, thank you. Just to clarify, Elizabeth, the FX impact, is that primarily again just on the center-based revenues? And just maybe some color on the organic part of that? I guess no real changes there?

Elizabeth Boland

I didn't hear what you said. Is it primarily on the what revenue?

Manav Patnaik

The center-based revenue?

Elizabeth Boland

Yes, it's primarily on center-based revenue. There's a little bit of an effect, the UK has some back-up business, but it is primarily in full-service. And proportionate new growth in the UK as in the U.S. So there's – primarily it's organic, but there is certainly we’ve had the three center acquisition we did earlier this year was in the UK. And some of the comparability that we have is the group we acquired – we acquired two groups in the UK last year in the second half of the year. So we have a more – sort of a more challenging comp on a lower FX rate this year in the back half than we would have had last year. Last year’s second half was relatively higher. So just in terms of the details.

Manav Patnaik

Okay. Fair enough. That's helpful. And Dave, I guess with the FX impacts on the GBP, I guess it gives you a sort of stronger buying power. And I guess your competitor, no pun intended, has been pretty busy out there in the UK making acquisitions. So maybe just an update on the pipeline. And maybe should we just expect more of the same, these really small deals, or anything sizable potential?

David Lissy

I think, Manav, as obviously you've heard me say in the past, the smaller deals will always be our bread and butter. And in fact, if I can think about sort of the back half of this year and look at what's in the pipe, we would expect to close on a few of them over the course of the next few months and into next year.

The larger ones are always going to be lumpy and be periodic in terms of when we can get them to happen. And yes, I think categorically, it’s obviously more economical for us now in the UK than it was six months ago. But really, we can't allow that to affect our focus on the fundamentals and being sure we're acquiring something that's of quality, that's got the prospects to grow and fit for a long time to come.

So we don't want to get too far out over our skis on things being – it being much cheaper and really stay focused on getting things that still make sense. So there's always going to be others out there that acquire things that aren't fits for us and that's fine. And when we find things of size that we think are really good fits, then we'll – then I think we have a good proposition to offer those sellers. So we'll continue to be active, but I think the larger ones will be lumpy.

Manav Patnaik

All right. Good. Thanks a lot for the color there.

David Lissy

Yes.

Elizabeth Boland

Thanks.

Operator

We have a question from Sara Gubins, Bank of America. Please go ahead, ma'am.

Sara Gubins

Hi, thanks. Good afternoon.

David Lissy

Hi, Sara.

Sara Gubins

Could you talk about margins in the UK and how that might vary from the U.S. or the overall business?

Elizabeth Boland

Yes the way – the variability is really concentrated in the fact that it's primarily a full-service business. So proportionate gross margins, proportionate overhead, expenses pretty similar. And we've been acquisitive there, so have some amortization effects as well. So I think it's largely that it's more in the neighborhood of what the U.S. – what the full-service business margins look like than the overall business, because the back-up component is so modest.

Sara Gubins

Okay. And then overall, can you give us an update on center staff turnover? Anything that might be worth noting there and any variations across the network, either by type of center or by maturity level of center?

David Lissy

I think, Sara, overall, you’ve heard me say our turnover rate hovers in the 20-ish% range. And when the economy was less robust, we were – that shifted down into the teens and in times like this, it gets slightly higher. So I think we’re in one of those periods where it’s slightly higher than where it had been a few years ago.

You know, I think that overall, the most challenging markets, probably no surprise, are the more urban markets, where things are more robust places like Seattle, San Francisco, Boston, New York. But there are also places still where our tuitions are able to absorb increases in salaries and I feel like we have good pricing power and demand is strong. So that’s sort of a little bit of color on it. No real color to provide you in terms of model type.

Sara Gubins

Okay. Great. And then just last question. Could you give us an update on capacity utilization levels at the mature centers and how much further you have to go before you reach prior peak levels?

Elizabeth Boland

So we are – as I mentioned, we are up about 1%, a strong 1% over last year coming off of several years of regaining enrollment in that 1% to 2% range. So we’re probably around 76% or so overall utilization and still targeting to get towards 78% to 80% as a steady-state target. And of course, if we can get higher than that, we would. But that’s what we saw as the sort of objective level that was sustainable across the system.

Sara Gubins

Great. Thank you.

Elizabeth Boland

Thanks, Sara.

David Lissy

Thanks, Sara.

Operator

The next question is from Jeff Silber, BMO Capital Markets. Please go ahead, sir.

Jeff Silber

Thanks so much, that’s close enough.

David Lissy

Well, we’ll rephrase Mr. Silber.

Jeff Silber

There you go, no problem. Can you talk about wage inflation trends? Are you seeing any spike in that, given where we are in the employment cycle? And if you are having any difficulty pushing through those wage inflation to your customers? Thanks.

David Lissy

Yes. Jeff, as I commented just a minute ago to Sara’s question, it sort of applies a little bit to the question you just asked. I do think that this is in this kind of labor market, where things are good from a labor market perspective we do see wage pressure in some markets, particularly in the more urban markets, where the labor market is even more robust.

I then feel confident, though, with that said that we have been on this for a while, we’ve been looking at it, we monitor it really closely. And we feel good that we’ve been able to price in and expect to continue to be able to price in what we think we’ll need to do in the coming months and into next year. So that’s kind of where we stand.

Jeff Silber

All right. That’s helpful. And you had mentioned or you highlighted some of the areas of strength by industry vertical. Are you seeing any areas of weakness? I’m specifically interested in both energy and financial services. And if you can remind us what your exposure into those verticals, that would be great.

David Lissy

Yes. So overall, we still see activity in the financial services sector. I believe financial services is in the 18%-ish of our…

Elizabeth Boland

Yes, I’m just going…

David Lissy

Elizabeth, I’ll get the exact percentages in a second. So we have financial service clients do make up a piece of our pie. And we still see activity happening with regional banks and some smaller financial service companies. Many of the larger companies have long been our clients and continue to add services. So I feel like overall financial services has continued to be steady for us over the course of the past year. And I’d look at the pipeline; it’s also steady. It’s not – I wouldn’t call it out as the sector that’s the most robust, but also not the other direction either. I’d just call it steady.

With respect to energy, that’s really a de minimis piece of our – it’s a very, very small piece of the pie. We had some activity a few years ago when that industry was more robust with some centers that we opened in Houston for some of the larger energy companies. And they are doing fine; they are doing well. But we really haven’t seen much expansion in the past year or two and I don’t expect that to be a sector of much promise in the near future. But the exposure there is not even on the map. It’s less than a percent. So – but in financial services, to answer your question is 16% of our center – excuse me – our client revenue.

Jeff Silber

And I’m sorry, if I can just sneak in another one. Can you give us the other percentages of the major industry verticals?

Elizabeth Boland

Yes, so this is an information that we have in our investor deck. So it’s through 2015, but it’s representative.

Jeff Silber

Yes, I can look it up then, I apologize. Thanks so much.

Elizabeth Boland

I don’t have it updated for June. Thanks.

Operator

We have a question from Andrew Steinerman, JPMorgan. Please go ahead, sir.

Andrew Steinerman

Hi, two quick questions. I just wanted to make sure the 8% to 10% organic that we are talking about is pre-closing. So there’s 1.5 closings after that, right?

Elizabeth Boland

That’s right.

Andrew Steinerman

Okay. And would you be willing to tell me how much revenue approximately the new consortium centers make up at this point, the years of newer consortium centers?

Elizabeth Boland

So, I mean, on average, the center – by newer, you mean the class that we’ve been talking about from 2013 forward?

Andrew Steinerman

Right, exactly.

Elizabeth Boland

So on balance for that cohort of centers is in the range of $65 million to $75 million or so.

Andrew Steinerman

Okay. Thank you.

Operator

Mr. Lissy, there are no further questions at this time.

David Lissy

Okay. Well, again, apologies for the initial challenge we had on the call. And we appreciate, as always, your support and your tuning in to these calls. And we will be seeing you on the road, I’m sure, in the back half of the year. And as always, let us know if there’s any other questions. Have a good night.

Elizabeth Boland

Thanks, everybody.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may disconnect your lines at this time.

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