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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings, and welcome to the Bright Horizons Family Solutions Third Quarter 2020 Earnings Conference Call. [Operator Instructions] as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Senior Director of Investor Relations. Please go ahead.
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.
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 5 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 with 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 we 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 reopenings 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 re-enrollment 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 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 3 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 7 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 in order to continue to serve the growing number of families who need care.
In terms of Q3 backup 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 as well as 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 underscores 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.
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, which 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 remain 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, Back-up 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 the backup care will grow approximately 25% for the full year. As we discussed last quarter, client use was heavily concentrated in the first 6 to 9 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 Instructions] Our first question comes from Manav Patnaik with Barclays.
My first question is, of 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 the urbanization and if maybe as to relocate I think strategically different basically.
Sure. 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 the most highly impacted by the current operating conditions and didn't have a sort of near to midterm recovery associated with them.
Yes. And I think as it relates to the impact of the urbanization -- de-urbanization, urbanization, it's obviously an evolving environment. People are -- the reporting, notwithstanding, we actually are not seeing a substantial difference in our enrollments between our more densely urban centers and our more suburban centers. It's something that we've always tried to locate our centers where working parents are living, where employers are located, and therefore, where demand will be the most persistent. And so I think that we will continue to adapt to that if those trends continue. But I think with the footprint we have, we're able to serve the variety of parents in both locations. Many, many parents live very proximate to where they work. The vast majority of parents are within a few miles in our population of where they work. So even with this, I think that the ability to serve the parent needs even as these demographics may shift in some areas and not others, but more of that is to be seen. And at this point, we're not seeing that as a big driver yet.
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 more days and therefore, see some upside to what the way you just guided?
I think it's certainly possible. The conversations with our client partners are ongoing, Manav. I think it is -- can be varied by employers and how they're 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.
Next question comes from Andrew Steinerman with JPMorgan.
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 time frame from last quarter's comment?
Sure, Andrew. So I think that the -- interestingly enough, I think last quarter, we talked about the range of enrollment levels in the centers that are open. And that range actually still holds. It's between -- ranging between 20% and 60% generally. That's in part because we continue to open quite a number of centers in August and September. And so we have some that are in the very earliest stages of reenrolling and others that have been open longer. On average, we are in the range of about 35% to 40% in the open centers, if we just sort of look at sort of the narrow part of the bell curve. And I think from the standpoint of as we look ahead, certainly, the -- I think that the fall, last time we talked early August, the timing of what was going to happen with school reopenings, how businesses are responding to the pandemic, how it's playing out, I think there is -- continues to be some hesitation. So there will be developments that happen over the next 3, 6, 9 months that could change the trajectory of what we're estimating. But I think on the pace that we're seeing parents coming back and assuming that things continue along, we do see it as an improvement quarter-by-quarter but still a number of quarters to go. So I -- if it's changed, it's a bit of a nuance to last half of the year until later in 2021, but I think we all have to see what else occurs over the next 3, 6 months because a lot of this is dependent on factors outside of our operations.
And next question comes from Jeff Silber with BMO Capital Markets.
Wanted to shift over to your Back-Up Care business. I understand there's a little bit of volatility in terms of folks using their residual care. But stepping back, I mean, it's really a phenomenal offering that you have. Are you -- or would you consider offering this to noncorporate clients, I guess, to individuals, given the technology that you have to make it available?
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 is the best way for us to continue to grow this market.
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.
Yes. So certainly, we've reviewed the Biden proposal thoroughly and believe that government involvement in child care can be a 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.
Next question comes from Gary Bisbee with Bank of America.
I guess I'd love to start with the backup business. Can you help at all sort of disaggregate the growth you delivered either year-to-date or the 25% you're targeting? And what I'm trying to think about is sort of what's the contribution from new customers who've engaged you to offer backup versus existing customers where you've had a broader penetration of their employees or more of their base of employees using the service versus employers increasing their usage limits due to the strange times we're in.
And I guess what I'm trying to really get at is, if it's new customers and if it's broader usage, it would strike me that those are factors that could help the business where maybe you've taken a step-up in sort of the size of the business or TAM or however you want to think about it that don't necessarily go backwards. But if it's -- a big part of it is increased usage and temporarily offering the...
The reimbursed care?
Yes. Like that would seem more at risk of normalizing at some point in the future. Can you just help us think about those factors?
Yes. I mean let me start and see what -- have Stephen certainly add color, but I think if we look at the start of the year, where we would have expected growth to be in the low double digits, we are outperforming that by a factor of 2x. And some of that is substituted use into reimbursed care versus other care, but I think your question is the right one in terms of how many clients we've added. We've added 100 -- order of magnitude, 100 new clients this year. That's substantially higher than we would have expected coming into the year, again, probably by a factor of 2. Now that's number of clients, not -- all depends on their relative size and average contract value. And I don't have that at my fingertips. But I think that there is -- that is certainly a factor in what we see as the ongoing ability and tail of growth to be serving those clients in an expanded way. Just sort of for color commentary on how new clients launched generally, this year is -- has the added impact of COVID and many clients we're launching with an immediate need. But oftentimes, the first year or 2 of a program is not when the client has the most use. They grow into a program and it becomes something that's embedded into their employees' benefit program and it's something they really come to value over time. So we see the real long-term value of those relationships happening over the 5, 8, 10-year life cycle of those contract relationships. So I think you're right to point out the new versus the expanded use.
There certainly is a large portion of the growth that's above our target this year that's just related to that expanded use in that unusual circumstance of COVID. But I think I'd be broadly characterizing it to say that maybe 1/4 to 1/3 of it is that expanded new growth opportunity that could play itself out over time, whereas 1/4 3/4 to 2/3 is that bubble of COVID spend. But there are some parameters. I don't know, Stephen, if you...
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...
It's not new clients.
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.
Yes. That makes a lot of sense. It seems like you've -- it's been a great opportunity for the business. I guess if I could drive that question down to the margins, the revenue moderating relative to the explosion last quarter, but the margins were still outstanding. Is that -- my sense was the reimbursed care was extremely -- maybe lower revenue but extremely profitable. But is that just -- how are the margins so strong? And how would we think about them in the down year-over-year next quarter to get to that plus 25% here? Does it start moving back to the long-term average around 30 or...
Yes. Yes. I mean I think that's the headline that we would expect to see them moving back toward that 30% range. I think we've stated sort of our long-term expectation with backup would be being able to keep in the high 20s to 30% as operating income. The reason -- in part, the reason is because of reimbursed care, which is accounted for on a net revenue basis, it's a -- so it does have very high margins just because it's a reimbursement model. So that's a factor.
But I think the other factor is what we pointed to in terms of the relative use levels as parents need to -- they're shifting back to more traditional use what would have otherwise been a much higher traditional use and sort of the providers that would be paid for that traditional use, that was dampened some. So the cost structure was, therefore, a bit lower. And that, again, is -- I don't think that, that's the recurring condition, but that was the condition this quarter.
And then just one last one, if I could, on backup. The -- you said clients are starting to look forward to '21. I know a lot of businesses have already gone through benefit open enrollment. What is that looking like? Are you -- the pandemic is not going to end December 31, sadly. So are you seeing expanded commitments for next year? Are they generally going back to the pre-pandemic levels? I guess how are those conversations in those engagements going?
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.
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...
Yes. I mean it will get better as we continue to move the enrollment past the sort of 50%, 60% -- well, 50%, 55% level. That's generally when centers are on average breaking even, but there is sort of a step variable cost add. So we're still in that mode. And of course, some centers are further along in that, but that decremental effect will -- we would expect that to abate as we do continue to enroll, and as I say, get past that sort of 50% level. And then we're able to infill with enrollments in a more efficient way than we are now because we're both opening a new classroom, and then we're just -- we're sort of bringing people along, as you say, ahead of the actual revenue flow.
Next question comes from Hamzah Mazari with Jefferies.
This is Mario filling in for Hamza. Appreciate the time. I guess just looking at, I guess, what the risk of re-closure would be. I was just wondering what -- what's it going to take for you to close centers that you already reopened? Is it just a function of state law? Or I mean, the U.K. is locking down right now. I mean how much impact is that going to have to you? I'm assuming you have to follow that. Or is it that your centers will remain essential services? I'm just trying to gauge again the exposure to the U.K. lockdown and then also what it would take for you to reclose centers in the U.S. if there were another type of lockdown?
Absolutely, Mario. Thanks for the questions. So if we look to the U.K. and they have gone into lockdown for the month of November, but very specifically, the Prime Minister exempted schools and child care. And I think that, that exemption was based on 2 things. One is that there is a recognition that schools and child care 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 child care 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 in 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.
Great. That's super helpful. And then just on some of the bigger wins that you had, you actually mentioned those on the call. And I think -- I mean just looking at what the pipeline looks like today versus, say, a year ago or, say, versus at the height of COVID in April. Could you just kind of just give us an idea of what that pipeline looks like and compare those 3 different time lines just to get a sense for, I guess, how large your opportunities are going forward? I think you had said, obviously, that this is the most demand that you've seen and the most inbound traffic you've seen. Just again, just trying to gauge that pipeline moving forward.
Sure. So clearly, it varies by the service that we offer. So on the center side of our business, we're seeing a pipeline that is very much in line with traditional times. I think some employers are on a decelerated time horizon in terms of their decision. And at the same time, we have other employers that are on an accelerated time frame. So I'd say on balance, we have a similar pipeline, and it's moving at a similar cadence than we'd see in typical times.
We certainly have an increased pipeline on the backup side of our business. Certainly, there have -- there was a pretty good spike in the early days of the pandemic as it relates to new client commitments. On the other hand, we continue to see an elevated level of pipeline against what we would see in more typical times. And then on the Ed Advisory side of our business, it's pretty much business as usual. And so we're seeing a fairly consistent pipeline as it relates to what it is today versus what we'd see in more typical times.
Next question comes from Jeff Meuler with Baird.
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.
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 we 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.
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?
Yes. So I would say that the 2 primary areas that families who are choosing to wait -- and that's really the feedback we're getting from families. It's not that they are saying, no thank you forever. They're really saying now is not the time for me. And so they're perhaps deciding that they're going to start in January or after the first quarter. And typically, what we're hearing back from them is, first and foremost, they do have concerns around the health and safety, not about Bright Horizons in particular, but just about community spread in their particular community or just don't have the confidence to return out into the community and have their children in care. I would say that the second piece, right, so if health and safety is sort of one psychological barrier, I'd say the second is that they may have either other children that are at home or their work situation has changed. And so there is the occasion where a person has either reduced their hours because they have a school age child that they need to support with learning on a virtual or hybrid basis. And so therefore, they're taking on more of the caregiving responsibility. But I would say that those are the 2 factors that we're hearing from those who are deciding not to come back now and only a small proportion are saying that they don't plan to come back. We are not hearing some of the things that you implied in your question, which are around their work arrangement. So we're not hearing, for example, that because they're working from home, they, therefore, don't need care. I think that our formerly enrolled families are very clear that it is impossible for them to manage both work and life. So the idea of the fact that they may be still working remotely as a reason they're not coming back is not ranking high in our surveys.
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?
Yes. So with $170 million year-to-date, so it was about $120 million, just under $120 million in the quarter. And that was largely on the collection of receivables that had been outstanding through June. So we typically have very strong cash flow in the first quarter, first half of the year. And then our -- it's not generating net-net very much in the second half based on how the business typically operates. But this year, we had a higher level of receivables. Much of it was driven through the Back-Up Care surge of activity in Q2. So those collections in Q3 is the main driver.
[Operator Instructions] Our next question comes from George Tong with Goldman Sachs.
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?
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?
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, the demand isn't there yet.
No. So I mean I think there are certainly some circumstances where we may not have -- we may be fully enrolled in a classroom. And so we can't take any more because of the -- either the absolute capacity or the restricted capacity. But I think in large measure, this is a matter of us reenrolling in the demand coming back. So we are opening classrooms. So if we have a center that has 100 capacity, 120 capacity usually, and it may have a restricted capacity because of group sizes, that is 110. We would be -- we wouldn't have every classroom open if our demand was for 50 children. We would have classrooms open to accommodate that demand, and we would open additional classrooms as the demand comes in. So I think that the restricted capacity isn't governed by what states are imposing in terms of any kind group size restriction. We're in the mode of reenrolling families based on their own personal situation to come back. As we said, families need care, but they also need to feel like their health and safety is protected and that they have -- that meets their family's needs.
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?
Sure. I mean I think we outlined that in the script that we did estimated our flow-through in the quarter would have been 50% to 60% for the full-service revenue decrement. And we came in at the low end of that at around 50%. We also came in very close to our -- we're within the range of our expectation on the revenue contraction. So in Q4, we've estimated the year-over-year revenue contraction to be 35% to 45% and that the decremental performance will also be in the 50% to 60% range. And that is driven by the -- as the question came in earlier, the additional labor that we bring on ahead of the enrollment or as we are enrolling children and it's not at its most efficient level on top of the other sort of costs that we have with hygiene and health and safety and the other usual program costs. So our expectation would be for that kind of performance for full-service. And it sounds -- it's not terribly dissimilar to where Q3 was, but we do see some incremental enrollment continuing into the quarter. So there will be some improvement there, but it's the comparison over the prior year that is similar.
Next question is Toni Kaplan with Morgan Stanley.
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?
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, make 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.
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.
Yes, it's a great question. So our advisory business really comes in 2 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.
There are no further questions. I would like to turn the floor over to Stephen Kramer for closing comments.
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.
One of these days, we'll say, we'll see you on the road, but not yet.
Live and hope. Live and hope.
Take good care. Thanks, everybody.
This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.