Q2 2023 Bright Horizons Family Solutions Inc Earnings Call
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Thank you for the pension should conference well be giving in just a few minutes I want to thank you for your patience the conference will be beginning in just a few minutes.
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Greetings and welcome to your brain Horizons family Solutions second quarter 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to Mike I'll say, it again, Vice President of Investor Relations. Thank you you may begin.
Thank you Sherry.
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Joining me on today's call are Chief Executive Officer, Steven Crane, Chief Financial Officer, a little bit long.
She will start with reviewing our second quarter results provide an update on the business.
I will follow with a more detailed review of the numbers before we open up to your questions with that let me turn the call over to Steven.
Thanks, Mike and welcome to everyone, who has joined the call.
I'm really pleased with our performance in the second quarter, we delivered.
Strong results with another 20% plus year over year revenue growth quarter and solid adjusted earnings of 64 cents per share.
Occupancy improved sequentially increase Q2, and we realized year over year mid single digit enrollment growth.
Backup care delivered an outstanding growth quarter with Houston users outpacing our expectations and with June posting the highest traditional network use month in our history.
There is when you read the continues to trail our plan for the year, our UK full service business, where persistent staffing enrollment challenges remain a headwind to our overall earnings performance.
Overall, our first half results position us well to continue to make good progress against our 2023 objectives.
So to get into some of the specifics.
Revenue in the quarter increased 23% to 603 million with adjusted net income of $37 million and adjusted EPS of 64 cents.
In our full service child care segment revenue increased 23% in the second quarter to 459 million.
From a utilization standpoint, we made further progress across the center cohorts, we have discussed over the last few quarters.
Typically in Q2, 43% of our centers were in the top cohort defined as above 70% occupancy.
Only 14% of our centers are under 40% occupancy in Q2.
Improvements from the high teens in Q1.
We are pleased with the continuing enrollment gains and feel that we are well positioned as we head into the typical seasonal summer enrollment yet.
You get into a bit more detail in centers that have been open for more than one year enrollment increase at a mid single digit rate in Q2, and occupancy averaged more than 60% for the quarter.
In the U S year over year enrollment increased 10% and these like centers with sustained solid performance across all age groups and center models and notable momentum in our younger age groups with growth accelerating in the low teens.
And toddler classrooms.
Whilst I think remains a key strength in some locations.
Overall labor environment in the U S continues to stabilize and the many actions we've taken have driven considerable progress in staffing.
With retention rates ahead of pre pandemic levels and applications and hiring levels continuing to improve we are able to tour and offer places the families more quickly and better meet their needs.
These improvements will continue to help us to serve more children and families today and build the pipeline for future enrollment.
Looking outside the U S centers open for more than one year increased enrollment in the low single digits improving sequentially from flattish year over year growth in Q1.
The Netherlands, and Australia maintained higher levels of occupancy through the pandemic. So the cadence of the enrollment recovery is therefore more modest.
With this we continue to be pleased by the 2023 performance in these two geographies as they build back to pre pandemic levels.
Conversely, as I previewed the enrollment recovery in the U K continues to lag our growth expectations with a less favorable macroeconomic backdrop and a staffing environment that has remained particularly challenging.
Labor costs and margins are pressured by higher wage rates greater reliance on more costly agency staff and inherent inefficiency at current occupancy levels.
As a result, our operating performance is suboptimal and behind our plan.
While we have instituted a number of actions, including expanded apprenticeship programs international recruiting and streamlined candidate experience, we anticipate our overall labor costs to remain elevated for the remainder of the year and enrollment progress to be relatively limited.
Let me now turn to backup care, which delivered an outstanding quarter outpacing our expectations.
Revenue grew 27% to 116 million as utilization increases and as we extended our client partnerships with new launches in Q2 for Duke University Health system public storage and Sikorsky aircraft to name only a few.
Traditional network use was higher than we projected in the corner with broad based expansion of use across all care types.
Particularly strong was used with them bright horizons and network centers with overall use growth accelerating through the quarter.
The investments we have made an additional supply product development and technology initiatives.
To enhance awareness and access for client employees are showing real results as the uptake of the benefit grows across a wider swath of users.
The summer is off to a strong start and I continue to be excited about the opportunity to expand our backup business.
Sending our reach to clients and families.
And accelerating our company's growth and margin profile.
Our education advisory business delivered revenue of 28 million.
Notable new client launches in the quarter for an assistant college coach, including carrier Riot games and VF Corporation.
Before I wrap up I want to highlight some of the work we are doing in partnering with the sector to advance the early education field.
Last month, we had the honor of hosting 100, researchers policymakers and practitioners and the early childhood innovation side.
This unique gathering the United thinkers doers scholars and practitioners to foster fresh thinking innovative approaches and creative problem solving that no doubt will drive the field of early education forward.
This event was a great opportunity for us to showcase our leadership in the field and to learn from some of the industry's best and brightest.
In closing.
I am pleased with our solid first half of 2023.
Given the year's performance. So far we have moved off our 2023 full year revenue growth guidance to a range of 16% to 19% or $2 35 to $2 4 billion.
We are also revising our adjusted EPS guidance to a range of $2 70 to 280, reflecting the lower operating performance. We now anticipate in the U K for 2023.
With that I'll turn the call over to Elisabeth who will dive into the quarterly numbers and short share more details around our outlook.
Thank you Hello, everybody, who has joined Us Tonight.
To recap the second quarter overall revenues increased 23% to 603 million.
Adjusted operating income was 8% of revenue were 46 million, which is down 5 million from Q2 2022.
Adjusted EBITDA was 14% of revenue for 82 million roughly flat compared to the prior year.
We added six new centers in the second quarter and closed 14 and in the quarter with 1068 centers.
To break this down a bit further full service revenue increased 87 million to 459 million in Q2.
Or 23% over the prior year, which was ahead of our expectations for an 18% to 22% increase.
That's organic constant currency revenue grew approximately 12%.
Driven by increasing enrollment and pricing, while acquisitions added roughly 11% or 39 million to revenue in the quarter.
With respect to foreign exchange the year over year change in FX rates had a negligible impact on the quarter.
Enrollment in our centers open for more than one year increased mid single digits across the portfolio and occupancy levels. In these centers ticked up sequentially, averaging in the range of 60% to 65% for Q2.
As Stephen mentioned U S enrollment grew 10%, while enrollment in our U K and Netherlands centers increased 2% over the prior year.
Adjusted operating income of 15 nine in the full service segment contracted 9 million in Q2.
The year over year decrease was driven by a $7 million reduction in support received from the ARPA and government funding program over the prior year and the impact of the teacher compensation investments that we made in the fall of 2022.
As well as the continued inefficient spend and the UK, our Labour and agency staffing.
Partially offsetting these headwinds were contributions from the enrollment growth as well as tuition increases.
Turning to backup care revenue grew 27% in the second quarter to 116 million well ahead of our expectations for 15% to 18% growth.
Stephen mentioned, we were pleased with the volume and breadth of use throughout the quarter.
Operating income of 27 million was 23% of revenue, which is in line with our expectations for the quarter.
Our educational advising segment reported revenue growth of 4% to 28 million on expanded use of our workforce education and college admissions advisory services as well as contributions from new client launches.
And operating margin improved to 20% on spending efficiency.
Interest expense totaled 11 million in Q2, excluding a one and a half million per quarter related to the deferred purchase price for acquisition of only about children.
There's 11 million represents an increase of 3 million over 2022 extra vehicles at higher interest rates and increased revolver borrowings.
The structural tax rate on adjusted net income increased to 28, 3% in the quarter, an increase of 210 basis points over Q2 of 'twenty two.
So turning to the balance sheet and cash flow.
The quarter, we generated $113 million in cash in operations compared to 67 million in Q2 22.
We invested 50 million in fixed assets and acquisitions compared to 14 million in Q.
Two of 22 and paid down the remaining 45 million outstanding on our revolving credit facilities.
We ended the quarter with $66 million of cash and a leverage ratio of two eight times net debt to EBITDA down from three in a quarter times at the beginning of the year.
Moving on to our updated 'twenty eight 'twenty three outlook.
We are moving our 2023 full year revenue guidance to 2.35 to $2 4 billion to reflect the revenue outperformance in the first half of the year.
In terms of segment revenue, we now expect full service to grow roughly 17% to 20%.
Backup care to grow 15% to 17%.
And Ed advisory to grow in the high single digits.
On an EPS basis, we are revising or an adjusted EPS range of $2 70 to $2.80 a share.
This reflects performance in line with our previous expectations across the majority of the business, where the reductions specifically related to lower than anticipated performance in the U K.
Kinder in 2023.
In the more immediate time frame our outlook for Q3 is for overall revenue growth of 13% to 15% with full service revenue growth of.
14% to 16% backup care revenue growth of 12% to 15% and Ed advisory in the high single digits or 8% to 10%.
We expect Q3 adjusted EPS to be in the range of 80 to 85.
Before I close as we've done in the last couple of quarters I wanted to also provided additional context and summarized three discrete items that are affecting our reported margins and earnings growth rates in 2023.
Specifically related to ARPA funny interest expense and our tax rate.
We now expect those items to account for roughly 60 to 65 cents a share headwind to growth for the full year.
Including the effect of $30 million less in ARPA funny, P&L centers 12 million more in interest expense and a 210 basis point increase in the tax rate.
Specifically in Q3, we expect those items to account for roughly 15 cents a share headwind to year over year growth for Q3, with 8 million less in ARPA finding and.
Government funding that P&L centers, roughly 2 million more in interest expense and approximately 160 basis points higher tax rate again. This is all for Q3.
So with that Sherry, we are ready to go to Q&A.
Thanks, Yeah, if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
He is.
Our first question is from George Tong with Goldman Sachs. Please proceed.
Hi, Thanks. Good afternoon, you talked about seeing sequential occupancy improvement in the quarter can you talk about where occupancy rates ended in the quarter and what your latest expectations are for occupancy.
By the end of this year.
Sure. So in the quarter, we we have averaged about 60% to 65%. So kicked out several several percentage points from last quarter. We are at the highest seasonal point in the year for child care. So we will go into a bit of a dip in the third quarter and then begin to get back.
I bring it back in Q4, so we would expect to end the year at this point in the in the low 60%. So I'm just a bit behind where we are now after dipping down into Q3.
Got it that's helpful and you talked about seeing the U K business trade, a little bit below or behind expectation with staffing and enrollment challenges weighing on an overall results are can you talk a little bit about what.
When you might expect that to reverse and how overall performance outside of the U K and any other positives.
Positives or negatives to call out.
Okay.
Yeah. So I think that that's the view on the U K is it's one of our it being a more protracted.
Challenging labor environment than we had anticipated say a year.
Earlier in the year and even coming out of 2022, although it is it has been a challenging labor inbound environment around the world. We've seen more improvement more forward strides in the U S and in the Netherlands, and as well in Australia. So the performance outside the U S and in the other countries that we operate has been.
Pretty steady the the recovery to pre Covid levels isn't complete in the Netherlands, and Australia. They are they are both still a few percentage points behind where their occupancy levels would have been pre COVID-19, but they they had held steady or through the pandemic than the rest of the business already so that we can.
Or is it it's Steven I think referred to in the in the prepared remarks. It is a bit more muted because they are already at a higher starting place that does the performance there is solid.
It's really the U K. This is seen as more profound cost implications that that has not only affecting.
It's affecting the labor cost structure, but it's also because of the labor supply and the challenges of having sufficient staff, we are somewhat constrained on enrollment as well.
Yeah.
That's very helpful to revise I think it's a you know it certainly we're seeing that persist through the end of this year and I think you need to get through the fall and all.
That this fall enrollment cycles to have more color on that looking into 'twenty four.
Got it thank you.
Thank you.
Our next question is from Andrew Steinman with J P. Morgan. Please proceed.
Hi, Elizabeth just.
Just remind me I thought previously the company talked about 2023, our guide for full service operating margins to be kind of low single digits to high single digits and I didn't hear a comment today in that regard or that specific has there been any change to your expectations in terms of false.
Service operating margins and if you can make a comment about third quarter full service operating margins as well that'd be helpful.
Sure so.
So the first part of that is is right. Andrew I was just with refining we've been talking about sort of low to mid single digits four for full service operating margins. This year. This quarter. We are certainly in that are in that range and we would expect to see that tapers backup.
In the third quarter with this with the cyclical seasonality.
Coming in and offset by a little bit of positiveness of our Australia operations. We're just coming into you know, it's the sort of its strong season. If you will the one other headwind in Q3 as we will have ARPA Sunset easy ARPA government funding program at Sunset at the end of September and so.
We had about $9 million of ARPA funding in Q2, we would expect that to be six $5 million to $6 million in Q3 as it tapers off to be completed so the puts and takes there isn't it would still be in the low low single digits, a little bit behind where we are this quarter and then.
Picking up a bit as we get into the fourth quarter, a little closer to the you know between low low single digit and mid single digits I think wherever I go in the high single digits. Okay.
Thanks Elizabeth.
Yep.
Our next question is from Geoff Miller with Baird. Please proceed.
Yeah. Thank you. So what are you planning to change in the UK to the extent to which again, it's a tough environment, but to the extent to which there could be controllable that you can address with our <unk> initiatives.
Sure Jeff. Thank you so as I outlined in the prepared remarks, clearly there are actions that we have undertaken and continue to undertake.
I'll highlight a few and go into a little bit of detail, we believe that growing our own talent is something that we or specifically well suited to do in the U K. So increasing the scale of our Parentis. Your program is going to be an important element going forward. When we think about it it's not just about enlarging.
The classes of apprenticeships, but we are also taking actions to make sure that we're supporting our working learners. So that they can persist through the program complete and do it in the most economical tiny possible. We are also looking beyond so we have a history of international recruitment in.
Spain, we are looking at expanding that program to additional countries. So that we can expand the scope of that program. So that we can be bringing in talent from overseas. If you will for for the U K and then finally like we did here in the U S. We continue to look at ways that we can improve that.
Candidate experience, starting with the job seeker, all the way through their Onboarding and so those are three examples of actions that are that we at this point I have underway and we're going to continue to push hard on.
Got it and then in backup care you signed a lot of new clients through the pandemic you added a lot of new services.
You've had a couple of really strong growth quarters than I feel like every quarter, you're like quarter out guidance implies deceleration.
Can you just walk.
What are the limiting factors on the growth in backup care or maybe talk about what kind of success are you, having increasing use banks in care types. Among the clients that either signed up during the pandemic or prior to adding the new services.
Absolutely. So what we had talked about in Q1, when we outperformed was a possibility that that was a pull forward of use.
Related to individuals that we're pulling forward their use and then ultimately are we then modulate it out for the remainder of the year thinking that they may ultimately at the individual level <unk> be out of users. What we saw in Q2 very excitingly was actually an expansion of the user base.
Which was really positive for us some of that is that maturation of some of the new clients that you referenced that we're able to garner in the pandemic period, but certainly as we look at the first half of the year. We also need to be mindful of the fact that we were comping against the time in 2022.
Where COVID-19 is still existed in a in a more pronounced way and so we had I'm a crime in the first quarter, we had at least in our centers were still wearing masks into the into Q2 and.
And so when we look at our the use of acceleration in the second half of the year of 2022, we now will be comping against that going into the second half, which is why again I think we're gonna have a really strong performance of your overall, but why are we don't have expectations that our stronger on a growth rate.
Basis in Q3 and Q4.
Got it helpful. Thank you.
Thank you.
Hum.
Our next question is from Manav Patnaik with Barclays. Please proceed.
Thank you Elizabeth just like you did with the full service can you just help us with the margin expectations with anything that's changed for the whole year for backup and Ed and also you know so creaky look like might look like.
Sure so.
You saw that this quarter, we worried about 23% for the quarter and use is in its strongest period here in Q3, we would expect it to be even higher than we saw in Q2 of this is that.
And he had the summertime and so the margin we would expect it to tick up in Q3 to me more like 25% to 30% for the quarter overall for the year it'd be more like 25 to 28. So okay. You know Kerry you know carrying some of that benefit through to Q4, but a little bit more.
I like the normalized average by the end of the year.
Tobacco continues to 10 cases to deliver at that higher level affirmative headed by any standpoint, we've moved over 20% this quarter and EBIT margin would you expect that to be ticking up again that these are the annotation college coach businesses are both very much participant driven businesses that their participation tends to.
Pick up in the fall and that sort of in the late summer and fall periods. So we would expect those margins to tick back up to more like a 25% to 30% as well.
Thank you and I guess just in terms of the visibility for the call can you just talk about I apologize if I missed it but you know what utilization assumption you have little tweak you in full Q like how much you know enrollment of visibility do you have now.
Okay.
I'm, sorry, I didn't quite how much how much utilization.
Oh, Oh Oh.
Yeah.
Yeah. So you know pretty well we're in a stage where of course preschoolers have the least visibility. We have is as it relates to some of the changes that can happen in the older age groups and the timing of when and not so much when a child who's going into elementary school may leave we know what age they are when they go to outline his school that some parents makes us.
Your hands for a four year olds to get them in a in a program that's associated with their elementary school. So there can be some variability in that three and four year old age group turning over whereas we typically see infants and toddlers continue to age up and persist or a program. So we have reasonable visibility.
Into the fall at this point you know so far in the summer is it it is tracking to our plan, but there is that yeah. There was a little bit of unknown in terms of who maybe leaving in the month of August September two associated with some of these elementary school programs as I say, but.
It's not quantifiable like we've got 80% you know you don't.
Locked and loaded backlog that we have.
We have reasonable visibility with the emphasis television comprise at this point in infants and toddlers are more than 50% of our of our overall enrollment based so pretty pretty solid you there.
Yeah.
Alright, thank you.
Yeah.
Our next question is from Stephanie more with Jefferies. Please proceed.
Hi, good afternoon. Thank you.
Hello.
I wanted to touch a little bit on tuition increases there are just pricing. So first part the question you know I don't.
And maybe I just didn't hear it correctly, but in the UK You know are you planning on any kind of tuition increases or anything like from that respect that might help with some of the enrollment of the labor environment kind of similar to what you've implemented in the U S.
And then second part to the question on pricing, maybe just talk a little bit if you're getting any pushback or how you view the and tuition increases that you know how they are.
Resonated here in the U S.
Yeah, So I can start and interim Stephen can add color chassis, but overall the price increasing price increase decisions that we make well there.
They're local and it can be varied on a particular market on average we'd get tuition increases this year from 67% and that was also true in the U K.
And as we look ahead to 2024, we would be certainly kind of really of making sure that we're comping to the market and saying well as competitive and recognizing you know what other choices parents may have in order to set price, but knowing that the inflationary environment is.
But it is at its flavor inflation and other cost inflation as well, we will certainly want to be as assertive as possible on price, while balancing that with getting the enrollment into the centers.
We have found as you know certainly this year, we found parents to be generally quite I'm understanding of price increases they they recognize the labor environment. They recognize the challenges.
All of Gamestop, and keeping staff in central So I think it's been reasonably.
Reasonably well absorbed and that's part of the reason that we've taken a measured approach not trying to to recover all of the cost investment in one.
Michael that's looking at it over a couple of cycles and making sure that we're capturing as much of that marginal enrollment as possible and we just we feel like it's it's bearing fruit.
I think the market in the U K has other challenges that go beyond just tuition pricing.
Affordability is a challenge in and one of the programs. We're one of the elements of that if the government in the U K has been looking at is revising your reimbursement rates. They they support they support enrollment a three or three to five year olds and most more recently they added two year olds to be covered by <unk>.
A certain number of hours of care per week, and so they have been looking at those reimbursement rates to try to rightsize them for the inflationary environment, but it's.
Is it still doesn't completely address the affordability issue so.
The consideration for sure.
Yeah.
Okay. No. That's helpful color I appreciate it and then maybe.
Maybe in the same in the same line. That's just sticking on the UK. So kind of you called out portability and pricing is there also a sense that maybe some of these centers are structurally disadvantaged post COVID-19 or are you seeing anything else that you might have to be evaluated probably more so in 2020 four as we kind of continue to.
Look at you know what has been kind of an underperforming part you know maybe yourself and maybe just talk about some of those other factors.
Sure. So I think you know in and out.
I'll sort of elevated to say this is how we think about it globally.
And then obviously it applies to the U K, which is you know we we look at each center and sort of the sustainability and viability of each center individually uniquely and so as we continue to look at the centers in the U K in particular.
We are trying to make a tradeoff between you know the sight line to getting back to pre.
Pre COVID-19 levels, both from an enrollment perspective, but also from a contribution perspective at the same time. There are some that will be underperformers, but because of the life left on their lease it can be more economical to continue to operate those centers because they actually lose less sedan.
Then the amount of their rent would be each year and so continuing to operate that makes a lot of sense.
We haven't found landlords and this is sort of a categorical we have not found landlords are to be particularly.
Open minded as it relates to either taking back space indoor reducing rents in the current environment.
Again that may change, but at this point they've been pretty stubborn about continuing to maintain the leases even in places that may have been dislocated. So overall, we look at it on an individual case by case basis and as Elizabeth outlined earlier.
And you know the reality is that you know we continue to see a reducing number of centers that are in our lowest cohort and so we're encouraged them categorically with the progress we were able to make even in that lowest occupancy group.
Okay.
All very helpful. Thank you so much.
Thank you.
Our next question is from Toni Kaplan with Morgan Stanley . Please proceed.
So much I just really wanted to quickly clarify is the 60% to 65% utilization I know you prefaced it with centers open for a year or more is that comparable to the 55% to 60% that you gave last quarter end and the metrics that you've provided.
And the last number of quarters.
Yes, exactly that's a that's a comparative progression from the 55 to 60 last quarter.
Thanks.
Then I wanted to ask just on the EPS Guide you talked about the U K challenges you know driving that EPS guide down is there anything outside of the U K that you know.
Is it causing you to lower the EPS guide you know the margins than it is a little bit disappointing as well.
Other assets.
Mm mm Theres really very minor noise around there the rest of the business and so I'm just.
There may be a little bit of a softness on the Ed advising but that's really the only other thing that the rest of the business is performing pretty pretty steady according to the plan and the initial outlook into the game here.
Okay I did want to ask one last one on that advisory.
Seemed a little bit light this quarter and last quarter in terms of growth rate the comps get a little bit tougher in the second half and it seems like the guidance that you gave on the call is may be expecting some acceleration. So just wanted to know.
If there's something that has been pressure on that in the first half that will reverse or yeah that will drive the acceleration in the second half.
Yeah. So I think it's fair to say that you know, we we would've expected a better results in this area. We we have our own level of disappointment in this particular area given the opportunity that we see in front of us.
I would say that certainly we have.
We have made and taken some actions to try and improve the performance in this area.
We hired a new leader for this area, we have hired a new marketing leader in this area and so our expectation is that we're going to have the ability to first make some short term actions that are going to.
Accelerate things in the second half of the year and then in the longer term we have a we have good expectation of how this business.
Sure didn't will perform.
Thank you.
Thank you.
Our next question is from sits on our way with Deutsche Bank. Please proceed.
Yes, hi, Thank you I'm still a few clarifying questions. One just remind us how big the U K is I think you disclose how many centers are in the U K, but I'm curious from a revenue perspective how.
How much of a contribution I think you can't provide them you know more importantly give us a sense of what the margins were like in the business you know pre COVID-19 and sort of where they are now and how they compare to the U S.
Sure. So on the UK business overall is around 350 million.
In U S. C. In revenue it has a component portion of the business that is is it is a backup like fitness pet similar network to our.
Our back up business in the U S, but so 300 and 320 million versus about 49 is back up so.
The full service business is around $320 million and and that's associated with the 200 and Amy centers across you know across our various portion of the U K.
As it relates to that the business performed similarly to the U S. A pre COVID-19 considering I'll focus on the full service business. So within the sort of mid mid to high single digits operating income on the on the revenue flow from there with a again a small contract.
Vision for backup sandwiches has been able to expand.
At this point.
Where are you now where we're seeing the performance there they are they're certainly well below that and it has not been on the full service business is not not contributing so it's it's behind that it has the runway to get back is based on getting this enrollment recovered.
Great. Thank you and then just on on backup care you know you've had really strong growth on the top line.
But Martin.
We think that margins could be scope for them. So I'm curious like is that just higher cost so or or is there more to it like how should we think about long term margins in this business.
Yeah. So there's a number of considerations over the last couple of years that have made it maybe a little bit less.
Predictable or or consistent from quarter to quarter as we've been coming out of the out of this pandemic there were relatively higher than average margins to them typically we would expect the back up business to be performing in the 25% to 30% operating margin range.
We have have had as a result of relatively lower direct care service in in 'twenty, and 'twenty 2020, one we actually had higher margin because there's a lack of a third party provider fees that needed to be paid to <unk> to deliver the service and by that I mean.
Friday Horizons network of centers, our network partners.
The bright horizons.
Filiation within home caregiver. So there are there are more direct cost as we provide more use now and so that coupled with the essentially.
The technology backbone and the account management team.
Team that supports staying more than 1000 clients. We have are in backup is what drives they are the other investments that go into the business and so.
During some quarters of the year will be in this 20% to 25% range and another as we mentioned in this coming quarter, we would expect to be 25% to 30% range. So that the drivers are around utilization paying third party providers and and then ensuring that we're investing in the innovation.
To access customers to make the customer experience Smith and to ensure that we are matching care with the need.
Great. Thank you so much.
Yes.
As a reminder, it is star one on your telephone keypad, if he would like to ask a question.
Our next question comes from Josh Chan with UBS. Please proceed.
Hi.
Thanks for taking my questions I was wondering if you could talk about the performance of your lease consortium centers and if those are kind of stronger than than the other centers does that make you more inclined to open more of the lease consortium centers as we go into the future.
Okay.
Yeah. So are our lease consortium centers are structurally have the opportunity to be our highest performing cohort, it's where we are taking a risk on the site and we have full control of the responsibility for the P&L of the control over tuition.
And the decisions around no staff rates et cetera, as opposed to a cost plus kind of an environment, where the client is making more of those decisions and we have more of a fixed fee that we earn.
Our lease consortium centers are performing well and the the enrollment levels are went in together a couple of points behind where you where our direct client centers are but they're very proximate in recovery.
And as consistently as we would expect them to in terms of overall enrollment and and so we would yes expect we would be expecting to continue to open locations, where we see an under supply we see professionals young families.
Living and working in and so we're being certainly thoughtful over there. The next coming 12 to 24 months out where those commitments are undertaking given the dynamic environment that we're operating in but we feel good about the model as it allows us to to access markets that may otherwise be underserved.
Okay. That's that's great color. Thank you and then I guess on the on the guidance for Q3 odd with the EPS being higher than Q2 is that primarily a function of the backup care seasonality I'm just kind of.
Reconciled the the trajectory going from Q2 the Q3. Thank you.
Yeah. So certainly the backup performance is higher in Q3 versus Q2 by a substantial measure with the revenue was a lot higher and with margins not only moving from 23%. This quarter too you know, 25% to 30% in Q3 that the.
That's a lot of velocity in that that's the main.
The main reason for the move.
Okay perfect. Thank you for the color.
Hum.
And our final question is from Jeff Silber with BMO capital markets. Please proceed.
Thanks excuse me. Thanks, so much for squeezing me in I apologize I came on late I Hope. This question wasn't asked.
Thank you said you closed 14 centers in the quarter that seems to be a little bit higher than normal and I know it creeped up also a little bit last quarter can you give us a little bit more color where are those center closures in are you being more aggressive in deciding when to close underperforming centers.
Yeah.
Yeah. So so the center closing times this quarter, certainly where there's a little bit of.
D here and I'm happy to give you some color Geoff so probably.
Overall, we've closed and we've closed 22, so far this year.
But in the quarter three of the centers were backup centers. So we we have operated a network of backup centers and have found that the solution that works for more parents, rather than having their children and come to a a smaller say downtown backup site is is to utilize either to bright horizons.
Work at large or a third party providers are at home. So there's a couple of locations. They really just have not come back from the pandemic only we permanently closed so so that's.
One element, there's a couple of centers that we had.
<unk> had had temporarily closed that we we get ultimately say to your point, we're just they're not going to reopen we we don't have sightline on this being a viable side. So there were a couple of more that came into that category and and there were a couple of client centers. They were government agencies actually that has never.
<unk> had never really recovered given where they are located in the D C area.
Now that that has been that has not been a a bounce back market.
For us and others and so that that's probably that's a three I'd call out is notable.
And then I'm sorry, the second part of the question just generally are you being a bit more aggressive when you're deciding to close these centers am I reading too much into it.
Yeah, I would say you may be reading, a little bit into it Jeff I would say that you know we continue to be really disciplined about our closures and part of the decision of course becomes like it isn't typical times that you know some of this is about when the lease and occurs but I would say that in general I think we've been pretty disciplined.
About closures and so yes. This quarter had a few more than typical on the other hand, I would say I wouldn't read anything into it in particular.
Alright, I appreciate the color. Thanks, so much.
Thank you.
Terrific well. Thank you all very much for joining us this evening and look forward to seeing you out on the road this fall.
Everybody have a good night.
Thank you. This will conclude today's conference you may disconnect at this time. Thank you for your participation.
Mhm.
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