Q2 2023 Bright Horizons Family Solutions Inc Earnings Call
Participants
Elizabeth J. Boland; CFO; Bright Horizons Family Solutions Inc.
Michael Flanagan; Sr. Director of IR; Bright Horizons Family Solutions Inc.
Stephen Howard Kramer; CEO, President & Director; Bright Horizons Family Solutions Inc.
Andrew Charles Steinerman; MD; JPMorgan Chase & Co, Research Division
Faiza Alwy; Research Analyst; Deutsche Bank AG, Research Division
Jeffrey Marc Silber; MD & Senior Equity Analyst; BMO Capital Markets Equity Research
Jeffrey P. Meuler; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Joshua K. Chan; Analyst; UBS Investment Bank, Research Division
Keen Fai Tong; Research Analyst; Goldman Sachs Group, Inc., Research Division
Manav Shiv Patnaik; MD, Business & Information Services Equity Research Analyst.; Barclays Bank PLC, Research Division
Stephanie Lynn Benjamin Moore; Equity Analyst; Jefferies LLC, Research Division
Toni Michele Kaplan; Senior Analyst; Morgan Stanley, Research Division
Presentation
Operator
Greetings, welcome to the Bright Horizons Family Solutions Second Quarter 2023 Earnings Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to Michael Flanagan, Vice President of Investor Relations. Thank you. You may begin.
Michael Flanagan
Thank you, Sherry, and welcome to Bright Horizons second quarter earnings call. Before we begin, please note that today's call is being webcast and a recording will be available under the Investor Relations 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 statements 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 should be considered in conjunction with the cautionary statements that are described in detail in our earnings release, 2022 Form 10-K and other SEC filings.
Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statements. We'll also refer to these non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available under the IR section of our website at investors.brighthorizons.com.
Joining me on today's call are Chief Executive Officer, Stephen Kramer; and our Chief Financial Officer, Elizabeth Boland. Stephen will start with reviewing our second quarter results and provide an update on the business. Elizabeth will follow with a more detailed review of the numbers before we open it up to your questions.
With that, let me turn the call over to Stephen.
Stephen Howard Kramer
Thanks, Mike, and welcome to everyone who has joined the call. I am 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 $0.64 per share. Occupancy improved sequentially in Q2, and we realized year-over-year mid-single-digit enrollment growth. Back-up care delivered an outstanding growth quarter with use and users outpacing our expectations and with June posting the highest traditional network use month in our history.
There is one area that continues to trail our plan for the year, our U.K. full-service business, where persistent staffing and 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 $0.64.
In our full-service childcare 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. Specifically 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, an improvement from the high teens in Q1.
We are pleased with the continued enrollment gains and feel that we are well positioned as we head into the typical seasonal summer enrollment dip. To a bit more detail, in centers that have been opened for more than 1 year, enrollment increased 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% in these life 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 in our infant and toddler classrooms. While staffing remains a constraint in some locations, the overall labor environment in the U.S. continues to stabilize, and the many actions we have 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 to families more quickly and better meet their care 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 opened for more than 1 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 their enrollment recovery is, therefore, more modest.
With this, we continue to be pleased by the 2023 performance in these 2 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 back-up care, which delivered an outstanding quarter, outpacing our expectations. Revenue grew 27% to $116 million as utilization increased 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 quarter with broad-based expansion of use across all care types, particularly strong was use within Bright Horizons and network centers with overall use growth accelerating through the quarter.
The investments we have made in additional supply, product development and technology initiatives to enhance awareness and access for client employees are showing real results as the uptick 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 back-up business, extending 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 EdAssist and College Coach included (inaudible), [Wyatt] games and VF Corporation.
Before I wrap up, I want to highlight some of the work we are doing in partnering with this sector to advance the early education field. Last month, we had the honor of hosting 100 researchers, policymakers and practitioners at the Early Childhood Innovation Summit. This unique gathering 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 up our 2023 full year revenue growth guidance to a range of 16% to 19% or $2.35 billion to $2.4 billion. We are also revising our adjusted EPS guidance to a range of $2.70 to $2.80, reflecting the lower operating performance we now anticipate in the U.K. for 2023.
With that, I'll turn the call over to Elizabeth, who will dive into the quarterly numbers and share more details around our outlook.
Elizabeth J. Boland
Thank you, Stephen, and hello, everybody, who's joined us tonight. To recap the second quarter, overall revenue increased 23% to $603 million. Adjusted operating income was 8% of revenue or $46 million, which is down $5 million from Q2 of 2022, while adjusted EBITDA was 14% of revenue or $82 million, roughly flat compared to the prior year. We added 6 new centers in the second quarter and closed 14, ending the quarter with 1,068 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 is ahead of our expectations for an 18% to 22% increase. Net organic constant currency revenue grew approximately 12%, driven by an increased 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 opened for more than 1 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 $13 million 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 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 in the U.K. on labor and agency staffing. Partially offsetting these headwinds were contributions from the enrollment growth as well as tuition increases.
Turning to back-up care. Revenue grew 27% in the second quarter to $116 million, well ahead of our expectations for 15% to 18% growth. As 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 advisory segment reported revenue growth of 4% to $28 million on expanded use of our workforce education and college admissions advising 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 the $1.5 million per quarter related to the deferred purchase price for our acquisition of Only About Children.
This $11 million represents an increase of $3 million over 2022, attributable to 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 '22.
So turning to the balance sheet and cash flow. For the quarter, we generated $113 million in cash from operations compared to $67 million in Q2 of '22. We invested $50 million in fixed assets and acquisitions compared to $14 million in Q2 of '22 and paid down the remaining $45 million outstanding on our revolving credit facility. We ended the quarter with $66 million of cash and a leverage ratio of 2.8x net debt to EBITDA, down from 3.25x at the beginning of the year.
Moving on to our updated 2023 outlook. We are moving our 2023 full year revenue guidance to $2.35 billion 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%, back-up care to grow 15% to 17% and ed advisory to grow in the high single digits.
On an EPS basis, we are guiding to 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 with a reduction specifically related to lower anticipated performance in the U.K. through the remainder of 2023.
In a 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%, back-up 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 $0.80 to $0.85.
Before I close, as we've done in the last couple of quarters, I wanted to also provide the additional context and summarize 3 discrete items that are affecting our reported margins and earnings growth rates in 2023, specifically related to ARPA funding, interest expense and our tax rate. We now expect those items to account for roughly $0.60 to $0.65 a share headwind to growth for the full year, including the effect of $30 million less in ARPA funding at 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 $0.15 a share headwind to year-over-year growth for Q3 with $8 million less in ARPA funding -- at -- government funding at 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.
Question and Answer Session
Operator
(Operator Instructions) Our first question is from George Tong with Goldman Sachs.
Keen Fai Tong
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?
Elizabeth J. Boland
Sure. So in the quarter, we had an average about 60% to 65%, so picked up several percentage points from last quarter. We are at the highest seasonal point in the year for childcare. So we will go into a bit of a dip in the third quarter and then begin to bring it back in Q4. So we would expect that end the year at this point in the low 60s percent. So just a bit behind where we are now after dipping down into Q3.
Keen Fai Tong
Got it. That's helpful. And you talked about seeing the U.K. business trade a little bit below or behind expectations with staffing and enrollment challenges weighing on overall results. Can you talk a little bit about what -- when you might expect that to reverse and how overall performance outside of the U.K., any other positives or negatives to call out?
Elizabeth J. Boland
Yes. So I think that the view on the U.K. is one of it being a more protracted challenging labor environment than we had anticipated earlier in the year and coming out of 2022, although it has been a challenging labor 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 the other countries that we operate has been pretty steady.
The recovery to pre-COVID levels isn't complete in the Netherlands and Australia. They are both still a few percentage points behind where their occupancy levels would have been pre-COVID, but they have held steadier through the pandemic than the rest of the business already. So that recovery is, as Stephen, I think, referred to in the prepared remarks, is a bit more muted because they are already at a higher starting place, but the performance there is solid.
It's really the U.K. that is seeing this more profound cost implications that is 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. And to when that -- to revise, I think it's -- certainly, we're seeing it persist through the end of this year and the -- need to get through the fall and that this fall enrollment cycle to have more color on that looking into '24.
Operator
Our next question is from Andrew Steinerman with JPMorgan.
Andrew Charles Steinerman
Elizabeth, just remind me, I thought previously the company talked about a 2023 guide for full-service operating margins to be kind of low-single digits to high-single digits. And I did hear a comment today in that regard or that specific, has there been any change to your expectations in terms of full-service operating margins? And if you can make a comment about third quarter full-service operating margins as well, that would be helpful.
Elizabeth J. Boland
Sure. So the first part of that is right, Andrew. I just would refine it. We did talk about sort of low to mid-single digits for full-service operating margins this year. This quarter, we are certainly in that range. And we would expect to see that tapers back a little bit in the third quarter with the cyclical seasonality coming in and offset by a little bit of positiveness of our Australia operations, which is coming into sort of its strong season, if you will.
The one other headwind in Q3 is we will have ARPA sunsetting, the ARPA government funding program is sunsetting at the end of September. And so we had about $9 million of ARPA funding in Q2. We would expect that to be $5 million to $6 million in Q3 as it tapers off to be completed.
So the puts and takes there is that it would still be in the low single digits, so a little bit behind where we are this quarter and then ticking up a bit as we get into the fourth quarter a little closer to the -- between low-single digits and mid-single digits. So I don't think we were ever in the high single digits.
Operator
Our next question is from Jeff Meuler with Baird.
Jeffrey P. Meuler
So what are you planning to change in the U.K. to the extent to which -- I get it's a tough environment, but to the extent to which there could be controllables that you could address with BFAM initiatives?
Stephen Howard Kramer
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 are specifically well suited to do in the U.K. And so increasing the scale of our apprenticeship 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 are supporting our working learners so that they can persist through the program, complete and do it in the most economical time 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 the U.K.
And then finally, like we did here in the U.S., we continue to look at ways that we can improve the candidate experience starting with the job seeker all the way through their onboarding. And so those are 3 examples of actions that we, at this point, have underway and are going to continue to push hard on.
Jeffrey P. Meuler
Got it. And then in back-up 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, and I feel like every quarter, your like quarter out guidance implies deceleration. Can you just -- what are the limiting factors on the growth in back-up care? Or maybe talk about what kind of success are you having increasing use banks and care types among the clients that either signed up during the pandemic or prior to adding the new services?
Stephen Howard Kramer
Absolutely. So what we had talked about in Q1 when we outperformed was the possibility that, that was a pull forward of use related to individuals that we're pulling forward, their use and then ultimately, we then modulated out for the remainder of the year, thinking that they may ultimately at the individual level be out of uses.
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 still existed in a more pronounced way.
And so we had Omicron in the first quarter. We had -- at least in our centers, we were still wearing masks into the -- into Q2. And so when we look at the use 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 going to have a really strong performance year overall. But why we don't have expectations that are stronger on a growth rate basis in Q3 and Q4.
Operator
Our next question is from Manav Patnaik with Barclays.
Manav Shiv Patnaik
Elizabeth, just like you did with the full service, could you just help us with the margin expectations if anything has changed for the full year for back-up and ed? And also for 3Q, what that might look like?
Elizabeth J. Boland
Sure. So as you saw this quarter, we were at 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. This is the heat of the summertime. And so the margin, we would expect to tick up in Q3 to be more like 25% to 30% for the quarter. Overall for the year, it'd be more like 25% to 28%. So carrying some of that benefit through to Q4, but a little bit more like the normalized average by the end of the year. So back-up continues to deliver at that higher level.
From an ed advisory standpoint, we would deliver 20% this quarter, an EBIT margin. We'd expect that to be ticking up again. The EdAssist and College Coach businesses are both very much participant-driven businesses and the participation tends to pick up in the fall -- in sort of the late summer and fall period. So we would expect those margins to tick back up to more like 25% to 30% as well.
Manav Shiv Patnaik
Got it. And I guess just in terms of the visibility for the fall, can you just talk about -- I apologize if I missed it, but what utilization assumption you have for 3Q and 4Q? Like how much enrollment visibility do you have now?
Elizabeth J. Boland
I'm sorry, I didn't quite -- how much utilization...
Michael Flanagan
How much enrollment visibility do we have...
Elizabeth J. Boland
Enrollment visibility, sorry. Yes, so pretty -- we're in a stage where, of course, preschoolers, the least visibility we have as it relates to some of the changes that can happen in the older age groups and the timing of when not so much when a child who's going into the elementary school may leave. We know what age they are when they go to elementary school, but some parents make decisions for 4-year olds to get them in a program that's associated with their elementary school. So there can be some variability in that 3- and 4-year old age group turning over, whereas we typically see infants and toddlers continue to age up and persist through our program.
So we have reasonable visibility into the fall at this point. So far in the summer, it's tracking to our plan. But there is that -- there is a little bit of unknown in terms of who may be leaving in the month of August, September to associate with some of these elementary school programs, as I say. But it's not quantifiable like we've got 80% in a locked and loaded backlog, but we have reasonable visibility with the infants and toddlers who comprise -- at this point, infants and toddlers are more than 50% of our overall enrollment base. So pretty solid view there.
Operator
Our next question is from Stephanie Moore with Jefferies.
Stephanie Lynn Benjamin Moore
I wanted to touch a little bit on tuition increases or just pricing. So first part of the question, I don't -- and maybe I just didn't hear it correctly. But in the U.K., are you planning on any kind of tuition increases or anything like from that respect that might help with some of the enrollment in the labor environment kind of similar to what you implemented in the U.S.?
And then second part of the question on pricing. Maybe just talk a little bit if you're getting any pushback or how you view the tuition increases and how they have resonated here in the U.S.?
Elizabeth J. Boland
Yes. So I can start and Stephen can add color, Stephanie. But overall, the price increase decisions that we make, while they're local and can be varied on a particular market, on average, we did tuition increases this year from 6% to 7%, and that was also true in the U.K. And as we look ahead to 2024, we would be certainly -- really making sure that we're comping to the market and staying both as competitive and recognizing what other choices parents may have in order to set price.
But knowing that the inflationary environment is what it is, it's labor inflation, it's other cost inflation as well, we certainly want to be as assertive as possible on price while balancing that with getting the enrollment into the centers. We have found -- certainly this year, we have found parents to be generally quite understanding of price increases. They recognize the labor environment, they recognize the challenge of getting staff and keeping staff in centers. So I think it's been reasonably well absorbed, and that's part of the reason that we've taken a measured approach not trying to recover all of the cost investment in 1 cycle, but looking at it over a couple of cycles and making sure that we are capturing as much of that marginal enrollment as possible, and we feel like it's bearing fruit.
I think the market in the U.K. has other challenges that go beyond just tuition pricing and affordability is a challenge and one of the programs -- one of the elements of the government in the U.K. has been looking at is revising the reimbursement rates. They support enrollment of 3- to 5-year olds. And more recently, they added 2-year olds to be covered by a certain number of hours of care per week. And so they have been looking at those reimbursement rates to try to right size them for the inflationary environment, but it still doesn't completely address the affordability issue. So price is a consideration for sure.
Stephanie Lynn Benjamin Moore
Okay. No, that's helpful color. I appreciate it. And then maybe in the same line as just sticking in the U.K. So kind of you called out affordability and pricing, is there also a sense that maybe some of these centers are structurally disadvantaged post-COVID? Or are you seeing anything else that might have to be evaluated probably more so in 2024 as we kind of continue to look at what has been kind of an underperformance for maybe a year or so? So maybe just talk about some of those other factors?
Stephen Howard Kramer
Sure. So I think -- and I'll sort of elevate it to say this is how we think about it globally. And then obviously, it applies to the U.K., which is we look at each center and sort of the sustainability and the viability of each center individually and uniquely. And so as we continue to look at the centers in the U.K., in particular, we are trying to make a trade-off between the sight line to getting back to pre-COVID 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 than the amount that 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 categorical. We have not found landlords to be particularly open-minded as it relates to either taking back space and/or 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, the reality is that we continue to see a reducing number of centers that are in our lowest cohort. And so we're encouraged categorically with the progress that we're able to make even in that lowest occupancy group.
Operator
Our next question is from Toni Kaplan with Morgan Stanley.
Toni Michele Kaplan
I just really wanted to quickly clarify 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 and the metrics that you've been providing in the last number of quarters?
Elizabeth J. Boland
Yes, exactly. That's a comparative progression from the 55% to 60% last quarter.
Toni Michele Kaplan
Okay. And then I wanted to ask just on the EPS guide, you talked about the U.K. challenges driving that EPS guide down. Is there anything outside of the U.K. that is causing you to lower the EPS guide? The margin has been maybe a little bit disappointing as well across other areas.
Elizabeth J. Boland
There's really very minor noise around the rest of the business. And so just -- there may be a little bit of softness on the ed advising, but that's really the only other thing. The rest of the business is performing pretty steady according to the plan and the initial outlook at the beginning of the year.
Toni Michele Kaplan
Okay. I did want to ask one last one on ed advisory. It 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 seemed like the guidance that you gave on the call was maybe expecting some acceleration. So I just wanted to know if there's something that has been pressuring it in the first half that will reverse or that will drive the acceleration in the second half?
Stephen Howard Kramer
Yes. So I think it's fair to say that we would have expected better results in this area. 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 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 good expectation of how this business should and will perform.
Operator
Our next question is from Faiza Alwy with Deutsche Bank.
Faiza Alwy
So a few clarifying questions. One, just remind us how big the U.K. is? I think you disclosed how many centers are in the U.K., but I'm curious from a revenue perspective, how much of a contribution the U.K. provides? And more importantly, give us a sense of what the margins were like in this business, pre-COVID and sort of where they are now and how they compare to the U.S.?
Elizabeth J. Boland
Sure. So the U.K. business overall is around USD 350 million in revenue. It has a component portion of the business that is a back-up like business, pretty similar network to our back-up business in the U.S., but so $320 million versus about $40 million is back-up. So the full-service business is around $320 million. And that's associated with 280 centers across various portions of the U.K.
As it relates to that, the business performed similarly to the U.S. pre-COVID considering a focus on the full-service business. So within the sort of mid- to high single digits operating income on the revenue flow from there with, again, a small contribution from back-up then, which has been able to expand.
At this point, where we're seeing the performance there, they're certainly well below that and have not been -- the full-service business is not contributing. So it's behind that. It has -- the runway to get back is based on getting this enrollment recovered.
Faiza Alwy
Great. And then just on back-up care, you've had really strong growth on the top line. But margins, I would think that margins should be stronger. So I'm curious, like is that just higher costs? Or is there more to it? Like how should we think about long-term margins in this business?
Elizabeth J. Boland
Yes. So there's a number of considerations over the last couple of years that have made it maybe a little bit less predictable or consistent from quarter-to-quarter. As we've been coming out of the pandemic, there were relatively higher than average margins. Typically, we would expect the back-up business to be performing in the 25% to 30% operating margin range. We have had as a result of relatively lower direct care service. In 2020, 2021, we've actually had higher margin because of the lack of third-party provider fees that needed to be paid to deliver the service. And by that, I mean, the Bright Horizons network of centers, our network partners, the Bright Horizons affiliation within home caregivers. So there are more direct costs as we provide more use now.
And so that coupled with the -- essentially the technology backbone and the account management team that supports the more than 1,000 clients we have in back-up is what drive the other investments that go into the business. And so during some quarters of the year, we'll be in this 20% to 25% range and in other, as we mentioned in this coming quarter, we would expect to be in the 25% to 30% range.
So the drivers are around utilization, paying third-party providers and then ensuring that we're investing in the innovation to access customers to make the customer experience smooth and to ensure that we are matching care with the need.
Operator
(Operator Instructions) Our next question comes from Josh Chan with UBS.
Joshua K. Chan
I was wondering if you could talk about the performance of your lease/consortium centers and if those are kind of stronger than the other centers, does that make you more inclined to open more the lease/consortium centers as we go into the future?
Elizabeth J. Boland
Yes. So our lease/consortium centers structurally have the opportunity to be our highest-performing cohort. It's where we are taking risk on the site, and we have full control and responsibility for the P&L, the control over tuitions and the decisions around 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. The enrollment levels are within -- they are a couple of points behind maybe where our direct client centers are, but they are very proximate and recovering as consistently as we would expect them to in terms of overall enrollment. And so we would -- yes, expect -- we would be expecting to continue to open locations where we see an undersupply. We see professionals, young families living and working.
And so we're being certainly thoughtful over the next coming 12 to 24 months about where those commitments are undertaken given the dynamic environment that we're operating in, but we feel good about the model as it allows us to access markets that may otherwise be underserved.
Joshua K. Chan
Okay. That's great color. And then I guess on the guidance for Q3 with the EPS being higher than Q2, is that primarily a function of the back-up care seasonality? I'm just kind of trying to reconcile the trajectory going from Q2 to Q3.
Elizabeth J. Boland
Yes. So certainly, the back-up performance is higher in Q3 versus Q2 by substantial measure. The revenue is a lot higher and with margins, not only moving from 23% this quarter to 25% to 30% in Q3, that's a lot of velocity, and that's the main reason for the move.
Operator
And our final question is from Jeff Silber with BMO Capital Markets.
Jeffrey Marc Silber
I apologize I came on late. I hope this question wasn't asked. I think 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? And are you being more aggressive in deciding when to close underperforming centers?
Elizabeth J. Boland
Yes. So the center closings this quarter certainly were -- there's a little bit of variety here, and Patrick will give you some color, Jeff. So probably, overall, we closed 22 so far this year. But in the quarter, 3 of the centers were back-up centers. So we have operated a network of back-up centers and have found that the solution that works for more parents rather than having their children come to a smaller, say, downtown back-up site is to utilize either the Bright Horizons network at large or third-party providers or in home. So there's a couple of locations that really just have not come back for the pandemic, and we permanently closed those. So that's one element.
There's a couple of centers that we had temporarily closed that we did ultimately say, to your point, we're just -- they're not going to reopen. We don't have sight line on this (inaudible) site. So there were a couple of more that came into that category. And there are a couple of client centers, they were government agencies actually that had never really recovered given where they're located in the D.C. area. That has been -- that not been a bounce-back market for us and others. And so that's probably the 3, I call out, is notable.
Jeffrey Marc Silber
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?
Stephen Howard Kramer
Yes. I would say you may be reading a little bit into it, Jeff. I would say that we continue to be really disciplined about our closures. And part of the decision, of course, becomes like it is in typical times that some of this is about when the lease end 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.
Terrific. Well, thank you all very much for joining us this evening and look forward to seeing you out on the road this fall.
Elizabeth J. Boland
Thanks, everybody. Have a good night.
Operator
Thank you. This will conclude today's conference. You may disconnect at this time. Thank you for your participation.
