Earnings Call Transcript
BRIGHT HORIZONS FAMILY SOLUTIONS INC. (BFAM)
Earnings Call Transcript - BFAM Q3 2020
Operator, Operator
Greetings and welcome to the Bright Horizons Family Solutions Third Quarter 2020 Earnings Conference Call. At this time, all participants are currently in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Senior Director of Investor Relations. Please go ahead.
Michael Flanagan, Senior Director of Investor Relations
Thank you, Stacey, and hello to everyone on the call today. With me here are Stephen Kramer, our Chief Executive Officer, and Elizabeth Boland, our Chief Financial Officer. I'll turn the call over to Stephen after covering a few administrative matters. Today's call is being webcast, and a recording will be available under the 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 and financial performance, including the impact of COVID-19 on our operations, are subject to the safe harbor statement included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and are described in detail in our 2019 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 also refer today to 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. Stephen will now take us through the review and update on the business.
Stephen Kramer, CEO
Thanks, Mike. Hello to everyone on the call and thank you for joining us this evening. I hope that you and your families are remaining healthy and safe. I'll start tonight with a recap of our third quarter results and provide an update on our current operations. Elizabeth will then provide a more detailed review of the numbers before we open it up for your questions. To recap, we delivered revenue of $338 million and adjusted EPS of $0.02 per share for the third quarter. In our full-service segment, we not only reopened 490 of our centers in Q3 but also launched five new centers, including client centers for Clemson University, Discovery Communications, and Walmart's Sam's Club. Our Back-Up Care business was again a critical support to tens of thousands of families trying to balance their work and family commitments, including varied fall school schedules. During the quarter, we added to the portfolio of clients we serve, with Abbott Labs, IBM, Kraft Heinz, and Tractor Supply, among the employers who rolled out Back-Up Care in the quarter. In addition, we added to our educational advisory client base, launching service for Atrium Health, Cognizant, and Zoetis this past quarter. Overall, I'm really pleased with the progress we have made and our team's exceptional response through this very challenging time. As a reminder, at the end of March, we temporarily closed nearly 850 centers globally. We marshaled resources to develop and implement industry-leading COVID-19 operating protocols and focused our full-service operations on caring for the children of essential workers in 250 centers that remained open. In short order, we started collaborating with our employer clients to plan for center re-openings, so that as stay-at-home orders began to lift in the early spring, we were ready to deploy resources to safely welcome back families and staff. When we last spoke in early August, approximately 65% of our centers were operating, as we had reopened more than 470 centers. We reopened an additional 175 centers throughout August and September, and as we talk today, approximately 900 centers are open, representing nearly 90% of our total portfolio. While we continue to work with our client partners to phase the reopening of the remaining temporarily closed centers, our focus has transitioned to reenrollment in our centers, so that we can deliver the excellent care and education that our families have come to rely on from us and which they need more than ever in these challenging times. We've made good strides on the enrollment front, having safely welcomed back tens of thousands of children since May, and we remain encouraged by the trajectory of returning families. Our first priority has been reenrolling our previously enrolled families, then wait-listed families, and finally new families in need of care. Families want to come back to our centers, and we have heard time and again how critical our industry-leading health and safety practices were in their decision to return and in their decision to stay. Another area that I feel is important to emphasize relates to our client partners. I have to tell you that I have been really gratified by the commitment we have seen from our employer clients. Employers across all industries recognize that regardless of the work environment, on-site or remote, it is impossible for employees to remain productive while caring for young children. The fact that we recently opened three new client centers is indicative of the acute needs of working parents today and in the future and the critical value that employers provide by supporting an on-site center for their employees. The unwavering support in launching their new centers in the midst of this pandemic speaks volumes about the importance and position child care holds in their recovery and business continuity plans. Let me turn now to Back-up Care, which again delivered strong results. This too is an example of where many clients leaned in over the last seven months. Existing clients drove use by promoting their back-up benefit, and in many cases added days to cover gaps in care. We also saw a significant number of new clients implement Back-up Care for the first time. This includes existing Bright Horizons' clients as well as new employers. Also of note, we took steps to expand our network of third-party centers and in-home caregivers to continue to serve the growing number of families who need care. In terms of Q3 Back-up revenue, in-center and in-home use broadly tracked our expectations. What primarily drove the revenue outperformance was the residual reimbursed care that exceeded our expectations, as programs wound down throughout the summer months. As we approach the end of the year, we expect the combination of consumed use banks and the gradual reengagement by parents with traditional in-center and in-home care arrangements to result in lower overall use in our fourth quarter. Turning now to our Ed Advisory business, as we discussed last quarter, learning and development have remained critically important to our employer partners, as investments in this arena help attract and develop a productive and engaged workforce and also help build diverse and inclusive work cultures. A recent example of an EdAssist client investing in their workforce education program is DaVita, who launched a new program that removes the high out-of-pocket costs employees often face in continuing their education and helps create a pipeline of highly trained nurses within their company. DaVita is utilizing our innovative Bright Horizons' FASTTRACK program to provide cost-effective online college courses and credit. In addition, our leading educators at College Coach have delivered timely and insightful counseling to tens of thousands of prospective college students navigating a completely upended college admission process during the pandemic. Their unique perspective and adaptive advice has been invaluable in this unusual time. I continue to be very excited about the long-term growth in this segment and believe we remain well-positioned to capitalize on the cross-selling and new growth opportunities. Before I wrap up, I want to expand on one of the real bright spots during this pandemic, which has been the strength and durability of our long-standing employer relationships. Despite the profound impact COVID-19 has had on our business, our client relationships are deeper and broader than ever before. We have had more client and prospect interactions this past year than any year prior, and our expanded reach to key decision-makers has enabled us to work strategically with employers to develop and roll out new innovative solutions. As an example, many parents have had to deal with managing a virtual or hybrid environment this fall for their school-age children. We work with several key clients, including Accenture, Bank of America, and Microsoft to create highly subsidized learning pods to help relieve parents of the stress of managing their work-life and virtual school. It has been encouraging to see just how progressive many of our clients have been. They recognize the need is great and are investing in real solutions to help their employees. So in closing, we are making good progress recovering from the disruption caused by the pandemic. We have not only navigated a very challenging business environment this year, but we have been able to respond in a way that positions us for success over the long term. We have strengthened and deepened our relationships with clients over the last several months, working tirelessly to reopen centers, expand backup resources, stand up summer camps, and learning pods. We've even helped parents vote this past Tuesday by partnering with clients to provide free child care so employees can make their voices heard. Our results this year underscore the power of our employer-centric model and our ability to cater solutions to client needs. While so many things may change as a result of this pandemic, some things will remain the same. There will always be a need for high-quality, center-based child care that is affordable and convenient for working parents. And there will be interest and willingness by employers to invest in child care solutions to support their employees and differentiate themselves in the marketplace. I remain confident that we will emerge from this crisis well positioned to capture the significant opportunity that lies ahead. Over to Elizabeth.
Elizabeth Boland, CFO
Thanks, Stephen, and hi everybody on the call. Thanks for joining us tonight. As mentioned, I'll recap the headlines for the quarter and then provide some thoughts on the rest of the year. For the third quarter, overall revenue contracted 34% to $338 million. Adjusted operating income declined to a loss of $3 million, and adjusted EBITDA was positive $30 million or 9% of revenue. As Stephen outlined, we continued our reopening cadence in Q3, reopening roughly 490 centers and ending the quarter with more than 88% of our portfolio now open. While the large majority of our centers are now serving families again, we are in the reramping phase, and enrollment is therefore still well below the pre-COVID periods. As a result, full-service center revenue contracted $191 million or roughly 46%, which was in line with our expectations. Adjusted operating income for the full-service segment contracted $94 million over 2019 to a loss of $57 million. This represents a 50% flow-through on the revenue reduction, which compares favorably to our expectations of a 50% to 60% flow-through. As Stephen discussed, demand for our backup services drove solid performance again in the third quarter with top line growth of 16% to $93 million and with $46 million of operating income. Revenue was ahead of our expectations as the residual reimbursed care services were somewhat higher than we had predicted as most clients wound down their programs. While traditional in-center and in-home backup care use remains lower than the prior year, it is also reramping and broadly tracking our expectations in the current environment. As during the initial stages of the pandemic, we've been able to continue to limit the adverse effect of the revenue contraction on our operating income in Q3 in part due to the support that we received from our client partners as well as in relation to our variable cost structure. We've also been very disciplined about cost management, prioritizing spending and investments, and we will continue to be measured about remaining center reopenings so that we are aligning demand for care with the locations that we are operating. Interest expense of $9 million in Q3 of 2020 was down nearly $2 million over 2019 on lower interest rates and average borrowings. The third quarter 2020 structural tax rate on adjusted net income of 12% is down from 22% in 2019 largely on reduced taxable income. Turning to the balance sheet and cash flow, we've generated $170 million in cash from operations year-to-date, of which $120 million was generated in Q3. Year-to-date capital investments have totaled $45 million compared to $70 million in the prior period. We ended the quarter with $365 million in cash and we have no borrowings outstanding on our $400 million revolver. We ended the third quarter also with 1,026 child care centers in the portfolio. We continue to progress centers in the development and construction phase and currently expect to add approximately 20 new centers in the full year 2020. As we discussed last quarter, we also continue to evaluate our portfolio of centers to identify which locations we may consolidate, not reopen, or otherwise divest. In the quarter, we permanently closed 55 centers in North America and the U.K. These were typically smaller, below-average performing centers that have been particularly impacted by the current conditions and have had limited prospects for recovery. So turning to the rest of this year, as with the prior couple of quarters, we're not providing revenue or earnings guidance for the specific remainder of 2020, as the ongoing business disruption associated with the COVID pandemic remains difficult to predict both in duration and in scope. However, as we did last quarter, I can share some qualitative color on how we see the remainder of the year. We'll continue to phase in the remaining center reopenings in Q4 and into 2021 in collaboration with our client partners and with detailed demand surveys supporting the reopening timetable. With roughly 90% of our centers open, we are focused on reenrolling families and ramping our centers back to pre-COVID levels. We remain encouraged by the enrollment trends in reopened centers and continue to open more classrooms as well as demand returns and as families and staff acclimate to the new operating procedures. We continue to believe we will see the full recovery in our enrollments over time, but based on current conditions and general COVID uncertainty, we do expect that it will likely take several more quarters and therefore continue throughout 2021. We therefore expect full-service revenue to trail 2019 levels in the fourth quarter by approximately 35% to 45%, with a related flow through to operating income between 50% and 60%. As previously mentioned, backup care has clearly been a bright spot this year, providing great client service opportunities while also helping to contribute to the stability of our overall operating performance. Including the incremental contributions of reimbursed care this year, we expect that backup care will grow approximately 25% for the full year. As we discussed last quarter, client use was heavily concentrated in the first six to nine months of the year, with many employees already using all or a significant portion of their annual use banks, including the expanded use banks in many of our largest clients deployed. As we close out the 2020 cycle, we therefore expect lower overall use and revenue in the fourth quarter in relation to 2019. Finally, with respect to our Ed Advisory business that Stephen went through in some detail, we expect that to continue to deliver similar results in Q4 as we saw in the third quarter. So in conclusion, although the operating environment continues to be quite choppy, we made great progress in the quarter. The impact of the pandemic on our operations has presented us with both opportunities and challenges, and the team has responded extremely well. We've taken a lot of deliberate actions to combat the challenges that we have faced. At the same time, we've used the strength of our employer-centric model, our balance sheet, and our market-leading position to capitalize on opportunities, and we will continue to do so in the periods ahead. So, Stacy, with that, we are ready to go to Q&A.
Operator, Operator
Thank you. We will now be conducting a question-and-answer session. Our first question comes from Manav Patnaik with Barclays. Please go ahead.
Manav Patnaik, Analyst
Thank you. Good evening. My first question is about the 50 centers that you closed in the U.S. I know you guys typically evaluate the portfolio. But I was just curious if you're looking at different characteristics. And I know you mentioned demand and so forth in the press release. I guess it's just a broader question tied to whether you see any risk from de-urbanization, and if maybe as to relocate I think strategically different basically.
Stephen Kramer, CEO
Sure. Good evening, Manav. Thank you for the question. So as we think about our portfolio overall, I think there are a few things that we're looking at as it relates to the closures that you cite. I think first and foremost, we've done a really good analysis to understand where we have overlap of centers in our portfolio. And so, really tried to make sure that we've taken this opportunity to think about where we need to rationalize the amount of capacity we have in a limited geographic scope, and obviously have the ability to consolidate enrollment into fewer sites. In addition to that, as we look more broadly to characterize the kinds of centers that really are not reopening and are either going to be closed and/or divested, they tend to be smaller, as Elizabeth said, they tend to be lower performers from a financial standpoint. And ultimately, they are the ones that got most highly impacted by the current operating conditions and didn't have a sort of near to mid-term recovery associated with them.
Elizabeth Boland, CFO
I believe the impact of de-urbanization is still developing. Despite reports, we are not seeing a significant difference in enrollments between urban and suburban centers. Our strategy has always centered on locating our centers near where working parents live and where employers are situated, ensuring consistent demand. We will continue to adjust if these trends persist, but our current footprint allows us to meet the needs of parents in both settings. Many parents live close to their workplaces, and most are within a few miles. Thus, we can address parent needs even as demographics shift in certain areas, though we haven't seen this as a major factor yet.
Manav Patnaik, Analyst
Okay. That's very helpful. And then, Elizabeth, talking about the backup I understand, I guess most of the employees probably use that perks. And maybe it's too late, but is there a potential that corporate could sign up for more days, and therefore see some upside to what the way you just guided?
Elizabeth Boland, CFO
I think it's certainly possible. The conversations with our client partners are ongoing, Manav. I think it can be varied by employers and how their appetite is and how their budget for the year is. At this stage in the year, I'd say that we're seeing more clients looking ahead to 2021 than adding to this year's banks. But it's not to say that some of that won't happen. But I think we're trying to give the best view we can based on sort of the use levels we're seeing and what we've seen so far this year. So, like I say, I think in large measure many clients are turning the page, and so we too are looking ahead to next year.
Manav Patnaik, Analyst
Alright. Thank you so much.
Stephen Kramer, CEO
Thanks, Manav.
Operator, Operator
Next question comes from Andrew Steinerman with JPMorgan. Please go ahead.
Andrew Steinerman, Analyst
Okay, great. Elizabeth, would you be willing to comment on what the utilization rate is for your open full-service centers? And then also, when you said we're encouraged by enrollments that it will take, I think you said several quarters. I forgot the exact words you said to get back to normal levels. Was that meant to be a change of timeframe from last quarter's comment?
Elizabeth Boland, CFO
Sure, Andrew. Interestingly, last quarter, we discussed the range of enrollment levels in the centers that are currently operational, and that range remains between 20% and 60%. This is partly due to the number of centers we opened in August and September; some are just beginning to reenroll while others have been open longer. On average, the enrollment in the open centers is around 35% to 40% when looking at the narrower section of the distribution. Looking forward, we noted back in early August that the fall might bring changes with school reopenings and how businesses are responding to the pandemic, which has introduced some hesitation. There will be developments over the next 3, 6, or even 9 months that could alter our projections. However, based on the current trend of parents returning, we do see a steady improvement each quarter, but there are several quarters ahead. While there may be some adjustments to our expectations for the latter half of the year, it’s essential we monitor future developments since many factors are beyond our control.
Andrew Steinerman, Analyst
Exactly. Thank you.
Elizabeth Boland, CFO
Welcome.
Operator, Operator
Next question comes from Jeff Silber with BMO Capital Markets. Please go ahead.
Jeff Silber, Analyst
Thank you. I would like to discuss your Back-Up Care business. I know there's some variability in the usage of residual care. However, looking at it broadly, it's truly an impressive service you provide. Are you considering extending this offering to individual clients, not just corporate ones, given the technology you have to facilitate that?
Stephen Kramer, CEO
Jeff, thank you. So we agree. It is an absolutely critical and important support for working families. We really differentiate ourselves by partnering with employers. We view that the financial subsidy and support that they provide to Back-Up Care is critical to the use profile. And in addition to that, I think we all recognize that employers gain a great benefit in terms of their employees' productivity in this equation. So ultimately, we're big believers in staying with Back-Up Care focused on the employer channel and think that this is the best way for us to continue to grow this market.
Jeff Silber, Analyst
Okay. Fair enough. And given what's going on politically, I have to ask the election question. Let's assume that Biden will win the presidency. I know he's proposed some things dealing with child care whether it's providing universal child care or maybe preparations with some sort of tax benefits. I'm just curious how you think if these proposals go through it might impact your business? Thanks.
Stephen Kramer, CEO
Yes. So certainly we've reviewed the Biden proposal thoroughly and believe that government involvement in child care can be positive, if done in the right way. The idea of universal Pre-K and other supports that Biden has suggested would be in his plan are things that broadly would support child care, and therefore we would be supportive of. We operate in environments like the U.K. and the Netherlands where financial support of child care exists and it's a very important part of the overall model that we have in those countries. I think for better or worse, we have a long history of evaluating political plans. And unfortunately, the fiscal reality tends to be where the plans fall apart and ultimately don't get implemented. So while we like the idea of the U.S. having more financial support in the area of child care, we never count on that in our model. We don't count on that in our going forward and have always believed that given the absence of that that employers are really the third-party support that we can most count on here in the U.S. and it's been certainly the standard for us over the last 30 years.
Jeff Silber, Analyst
Okay, really helpful. Thanks so much.
Elizabeth Boland, CFO
Thanks, Jeff.
Operator, Operator
Next question comes from Gary Bisbee with Bank of America. Please go ahead.
Gary Bisbee, Analyst
Good evening, everyone. I'd like to begin with a question about the backup business. Can you provide some insight into the growth you’ve achieved so far this year or the 25% growth target you have in mind? I'm interested in understanding the contributions from new customers who have started using your backup service, versus existing customers who may have increased their usage or the number of employees using the service due to the current situation. Specifically, I'm trying to determine if new customer acquisition and broader usage are driving growth, as these factors could potentially lead to a larger business size or market opportunity that wouldn't revert back. However, if a significant portion of the growth is just from increased usage, it raises some concerns.
Elizabeth Boland, CFO
Yes, let me start and have Stephen add more details. At the beginning of the year, we expected growth to be in the low double digits, but we are actually outperforming that by a factor of two. Some of this growth is due to clients substituting reimbursed care for other types of care. Your question about the number of clients we've added is valid. We have brought on approximately 100 new clients this year, which is significantly higher than we anticipated, also probably by a factor of two. However, this number depends on the relative size of those clients and the average value of each contract, which I don’t have at the moment. It’s important to note that the onboarding of new clients this year has been influenced by COVID, leading many clients to launch with immediate needs. Typically, the first year or two of a program may not see the highest usage, as clients tend to grow into the program, making it an integral part of their employees' benefits, which they come to value over time. The real long-term value of these relationships unfolds over the 5, 8, or 10-year lifecycle of the contracts. I appreciate you highlighting the distinction between new and expanded usage. A significant portion of our growth surpassing our targets this year can be attributed to that expanded use in the context of COVID. I would broadly characterize the growth such that perhaps one-quarter to one-third is based on new growth opportunities that could develop over time, while the remaining two-thirds to three-quarters can be linked to the increased spending due to COVID. There are some nuances to consider, and I'm not sure if Stephen wants to add anything further.
Stephen Kramer, CEO
Yes. I think the only other thing I would add to it is that even within the piece that was the reimbursed care that represented a step-up that we won't see in more typical times, the treasure coming out of that, as we've discussed on previous calls is the idea that we now have a significant step-up in registered users who have utilized our program, granted it's been on the reimbursed care side that we now have the opportunity to convert to more traditional users on a go-forward basis. So I would say that even within the part that is not new clients and not something that will recur because it's reimbursed care in the midst of a pandemic, we have access now to a larger user base that we can ultimately transition into something that has a more recurring element to it.
Gary Bisbee, Analyst
Yes, that makes a lot of sense. It seems like it's been a great opportunity for the business. If I could narrow the question down to the margins, the revenue has moderated compared to the significant increase last quarter, but the margins remain outstanding. My understanding is that reimbursed care generated lower revenue but was highly profitable. How are the margins so strong? How should we consider them in the upcoming quarter, which is expected to show a year-over-year decline, as we aim for that plus 25%? Does it suggest a return to the long-term average around 30?
Elizabeth Boland, CFO
Yes, I believe that's the key point we expect to see them returning to the 30% range. We have mentioned our long-term expectation of maintaining operating income in the high 20s to 30%. This is partly due to reimbursed care, which is recorded on a net revenue basis and has very high margins due to its reimbursement model. Another factor to consider is the changes in usage patterns, as parents are transitioning back to more traditional usage levels, which had previously been higher. This shift has influenced the providers compensated for that traditional use, leading to somewhat lower costs. While I don't see this as a lasting condition, it did affect this quarter.
Gary Bisbee, Analyst
I have one last question regarding backup. You mentioned that clients are starting to look towards 2021. Many businesses have already completed their benefit open enrollment. How is that process shaping up? Unfortunately, the pandemic won't be over by December 31. Are you noticing increased commitments for the upcoming year? Are things generally returning to pre-pandemic levels? How are the discussions and engagements unfolding? Thank you.
Stephen Kramer, CEO
Sure. So first, as you might expect, our renewal rate is incredibly high. The clients who have been with us through this are certainly very much willing to continue to commit going into 2021. That's at the client macro level. Then at the program level, we are seeing that employers are returning back to their traditional use banks that they provide employees. And I think their approach on this is the belief that they're going to start there. And depending on how the pandemic unfolds next year, they will reserve the right to increase use banks if that is what is required. But certainly to start the year, they're starting with program parameters that look very similar to how they started 2020.
Gary Bisbee, Analyst
And if I could just sneak one more in on full-service. The 50% to 60% decremental margins, is there like a revenue decline level where that would moderate to a lower level? As I recall a quarter ago the commentary was sort of like we got to bring people back a little bit ahead of demand. Does that get better, or is that...
Elizabeth Boland, CFO
Yes, it will improve as we continue to increase enrollment beyond the 50% to 55% range. Typically, that's when centers start to break even on average, although there are some variable costs involved. We're still in that phase, and while some centers are progressing further, we expect the negative impacts to lessen as we enroll more and surpass that 50% mark. This will allow us to fill enrollments more efficiently, as we're currently in the process of opening new classrooms and bringing in participants ahead of the actual revenue generation.
Gary Bisbee, Analyst
Thank you. Very helpful color.
Elizabeth Boland, CFO
Thanks, Gary.
Operator, Operator
Next question comes from Hamzah Mazari with Jefferies. Please go ahead.
Unidentified Analyst, Analyst
Hi. This is Mario filling in for Hamzah. I appreciate the time. I am curious about the risk of re-closure. What would it take for you to close centers that you have already reopened? Is it primarily dependent on state law, or given that the UK is currently in a lockdown, how much impact will that have on your operations? I assume you must comply with that. Will your centers continue to be considered essential services? I'm trying to understand the potential effects of the UK lockdown and what conditions might lead to re-closure of centers in the U.S. if there were another lockdown situation.
Stephen Kramer, CEO
Absolutely, Mario. Thanks for the questions. So if we look to the UK, and they have gone into lockdown for the month of November, very specifically, the Prime Minister exempted schools and childcare. And I think that that exemption was based on two things. One is that there is a recognition that schools and childcare are critical and foundational to society, and therefore, they want to keep those supports available for families. I think the second piece is from a health perspective, I think the research is fairly conclusive that schools and childcare centers are not super spreaders. And therefore, they from a health perspective are safer to have open than other things in the community. If we sort of translate that back to the U.S., we really don't think about the scenario where we would be closing centers. I think that in the rare cases where we are having a COVID impact in a particular center, it is typically isolated to a classroom because again the way we are doing our protocols is very specific. We have social distancing at pickup and drop-off. We are ensuring that there's consistency of staff and children within classrooms, that there is no interconnectivity between classrooms, and children and teachers between classrooms. So in the case where somehow COVID does enter into a center, it's really isolated to a classroom. So I think what you would see is perhaps a classroom closing, but I don't see a scenario in the current environment where we would be closing a full center.
Unidentified Analyst, Analyst
Great, that's very helpful. You mentioned some of the significant wins during the call. Looking at the current pipeline compared to a year ago or during the peak of COVID in April, could you provide some insight into what that pipeline looks like and how it compares across those three timelines? I'm trying to understand the size of your future opportunities. You noted that this is the highest demand and inbound traffic you have experienced. I'm just looking to gauge the pipeline moving forward.
Stephen Kramer, CEO
Sure. The pipeline we have is clearly influenced by the services we provide. For our center business, it's aligned with typical levels. While some employers are taking longer to make decisions, others are moving more quickly. Overall, we have a steady pipeline moving at a usual pace. We've definitely seen an uptick in the backup segment, particularly with a surge in new client commitments early in the pandemic. Currently, we also maintain a higher level of pipeline compared to usual times. As for our Ed Advisory segment, things are largely operating normally, with a consistent pipeline similar to what we'd expect in typical conditions.
Unidentified Analyst, Analyst
Great. Thank you.
Stephen Kramer, CEO
Thank you.
Operator, Operator
Next question comes from Jeff Meuler with Baird. Please go ahead.
Jeff Meuler, Analyst
Yes, thank you. Good evening everyone. Just would love some more detail on kind of the waterfall that you described. So, you talked about first kind of enrolling the previously enrolled children and the wait-listed finally the new families, which makes sense. But I guess what I'm curious too is, is there a lot of demand that you're choosing to more gradually fulfill in terms of wait-listed demand or marketing to new families? Would just love any perspective on if that's what's happening and how meaningful it is.
Stephen Kramer, CEO
Yes. So, I think the reason we chose to approach it that way is obviously with those families who were previously enrolled, we set an expectation when we did temporarily close that we would prioritize their enrollment when we reopened. And so we stood by that commitment and made sure that we went out and continue to go out to each and every one of those families that was previously enrolled. As we've shared on previous calls, we're taking a very methodical approach center by center to reopen classroom-by-classroom. And so the first priority was provided to those previously enrolled families. In addition to that, at the time of temporarily closing, many of our centers did have wait lists. And so once we have gone back to those who had previously enrolled, we do go back and talk to those who are on the wait list. Again, people who have already toured, experienced and were excited to start within our centers. And again depending on when the center opened, we are in different stages of where we are between previously enrolled and those who are on the wait list. And then in the centers that have been opened the longest we are onto the phase where we are starting to increase our marketing activities and do marketing activities to attract new enrollment into the center. And so that's really been our approach and feel very good about the way we've approached reenrolling our centers.
Jeff Meuler, Analyst
Okay. And then any more detail you're willing to provide in terms of what you're hearing from surveying the previously enrolled families? So, those that have not yet reenrolled. And I recognize some are going to age up to pre-kindergarten or something somewhere else. But what are you hearing in terms of how many is just a matter of time? And is it that they're not back in the office yet? Is it health and safety concerns? Just what are you hearing on those that were enrolled and have not yet returned?
Stephen Kramer, CEO
Many families who have chosen to wait are not saying they will never return. Instead, they feel that now is not the right time for them, with some planning to start in January or after the first quarter. The main concerns they express are related to health and safety, specifically regarding community spread in their area and a lack of confidence in returning to the community with their children in care. Additionally, some families may have other children at home or their work situations have changed, leading to a reduction in hours due to the need to assist a school-age child with virtual or hybrid learning, increasing their caregiving responsibilities. Overall, these are the two primary reasons cited by those who are currently not planning to return, and only a small percentage indicate they do not intend to come back at all. We have not received feedback suggesting that families feel they don't need care because they're working from home. On the contrary, previously enrolled families understand that managing both work and life is challenging, and the idea that working remotely is a reason for not re-enrolling does not appear to be significant in our surveys.
Jeff Meuler, Analyst
Got it. That's very helpful. And then just one more if I could squeeze it in. Elizabeth, what was the cash flow from ops number in the quarter? I think I heard a pretty high number, and I think it might have even been up year-over-year. So any additional detail on what drove cash flow from ops in the quarter?
Elizabeth Boland, CFO
Yes. So, we reported $170 million year-to-date, which includes nearly $120 million in the recent quarter. This increase was primarily due to the collection of receivables that had been outstanding through June. Typically, we experience strong cash flow in the first quarter and the first half of the year, while the second half usually generates less. However, this year, we saw a higher level of receivables, largely due to the surge in Back-Up Care activity in Q2, which drove collections in Q3.
Jeff Meuler, Analyst
Got it. Thank you both.
Stephen Kramer, CEO
Thank you.
Elizabeth Boland, CFO
Thank you.
Operator, Operator
Our next question comes from George Tong with Goldman Sachs. Please go ahead.
George Tong, Analyst
Hi, thanks. Good afternoon. You talked about utilization rates of 35% to 40% at your newly reopened centers. Can you discuss how much that utilization is being driven by customer demand versus local legislation on maximum capacity versus self-imposed capacity restrictions?
Elizabeth Boland, CFO
Let me see if I'm understanding the question right, George. You're asking whether our utilization is gated based on state regulations or other restrictions on capacity. Is that what your question is?
George Tong, Analyst
Correct. Whether it's state legislation or whether it's something that BFAM is choosing to self-impose say the state is allowing this amount of capacity you're choosing to go below that or if it's just simply capped by demand, but demand isn't there yet?
Elizabeth Boland, CFO
No, I think there are situations where we might be fully enrolled in a classroom, which prevents us from accepting more children due to either our overall or limited capacity. However, this mainly revolves around us re-enrolling as demand increases. We are opening classrooms accordingly. For instance, if we have a center with a capacity of 100 or even 120, but the restricted capacity due to group sizes is 110, we wouldn’t open every classroom if our demand is for only 50 children. We would open enough classrooms to meet that demand and would add more as it grows. The restrictions on capacity aren't driven by state-imposed group size regulations. We are focused on re-enrolling families based on their circumstances. Families require care, but they also need assurance that their health and safety are prioritized and that their needs are being met.
George Tong, Analyst
Got it. That's helpful. And then I wanted to dive deeper into margin performance. Can you elaborate on how decremental margins for full-service in the quarter compared to your internal expectations and where you expect decremental margins to land next quarter for full-service?
Elizabeth Boland, CFO
Sure. We estimated that our flow-through for the quarter would be between 50% and 60% for the full-service revenue decline, and we ended up at the lower end at around 50%. We were also close to our expectations for revenue contraction. For Q4, we estimate a year-over-year revenue contraction of 35% to 45%, and we anticipate the decremental performance to remain in the 50% to 60% range. This is due to the additional labor we bring on ahead of enrollment or during the enrollment process, which is not as efficient, along with the usual costs associated with hygiene, health, safety, and other program expenses. We expect full-service to perform similarly to Q3, but with some incremental enrollment expected this quarter, leading to slight improvements, although the overall comparison to the prior year remains similar.
George Tong, Analyst
Got it. Thank you.
Elizabeth Boland, CFO
Welcome.
Operator, Operator
Next question is Toni Kaplan with Morgan Stanley. Please go ahead.
Toni Kaplan, Analyst
I was hoping you could update us on the M&A front. Are you seeing any financial pressure on some of the smaller players in the industry that could drive some acquisitions? Just what are you seeing in terms of valuations and opportunities as we look at M&A?
Stephen Kramer, CEO
It's a great question, Toni. And what I would say is that in terms of acquisition targets and candidly, this is true for landlords as well. I think that people are still in a wait and see a little bit and are trying to sort of continue to persist through this environment. So we are certainly continuing to build relationships, making sure that owners understand that we're here when they make that decision that they want to exit the business. But what I would say is that many of the owners that are out there are still contemplating their situations as opposed to deciding at this point to exit. We do think that through 2021, those opportunities are going to start to come out in more significant ways and more significant numbers. And so we are not either trying to pressurize and/or rush the opportunity and instead are making sure that we're in a relationship building mode and are taking opportunities that are coming towards us in a serious way but ultimately think that 2021 is going to have more opportunity than what we'll close the year at.
Toni Kaplan, Analyst
Very helpful. And then I wanted to ask about the educational advisory business. It's been really strong through COVID. And obviously, there's no reason why you can't conduct the services because I think most of it is probably over the phone anyway. But are you advising people on whether to take like whether their kids should take a gap year or something like that in addition to just the regular college enrollment type of questions with regard to where they should be going or financing things like that? And I guess given softness around college enrollments because of COVID should that pick up next year more so than now? And just wanted to understand the different moving pieces within that business. Thanks.
Stephen Kramer, CEO
Yes, it's a great question. So our advisory business really comes in two flavors. One is the work that we do with employers who are having or providing the opportunity for their employees to go back to school, and we'll very strategically manage that workplace education. The second part of that business is what you described, which is for employers who are supporting their employees with high school students to transition to college, we really are stepping in and providing expert guidance. And on that score, I would say that within the context of a very choppy environment in college admissions and in college evaluation, our experts are coming into a really important place for families and ultimately therefore for employees and their employers. As it relates to the decisions that are being made, you raised a number of important points, not the least of which is that many students are coming into this fall having not visited colleges, not having standardized tests, and are making decisions in ways that we've never seen before. Likewise, this spring, we're anticipating that students are going to be selecting colleges and they may or may not have the opportunity to visit those schools and/or have a really good sense of what college is going to look like in the following fall. So there are a whole host of conversations that are going on about gap years, about transfers, about which schools are in session versus doing hybrid or remote learning. And so it's been really impressive to watch our experts on the college admissions and college financing side do their work with families to support them to make good decisions in what is a really difficult environment.
Toni Kaplan, Analyst
Thank you so much.
Stephen Kramer, CEO
Thank you.
Elizabeth Boland, CFO
Thank you.
Operator, Operator
There are no further questions. I would like to turn the floor over to Stephen Kramer for closing comments.
Stephen Kramer, CEO
Great. Well, thank you all very, very much for your questions and also for joining us on this evening's call. Hoping everyone stays safe and healthy and has a nice Thanksgiving holiday coming up. Take care.
Elizabeth Boland, CFO
One of these days, we'll say we'll see you on the road, but not yet.
Stephen Kramer, CEO
Live and hope. Live and hope.
Elizabeth Boland, CFO
Take good care. Thanks everybody.
Operator, Operator
This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.