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Greetings, and welcome to Bright Horizons Family Solutions Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael Flanagan, Vice President, Investor Relations. Thank you, Mr. Flanagan, you may begin.

Thank you, Raju, and welcome to Bright Horizons second quarter earnings call. Before we begin, please note that today's call is being webcast and a recording will be available under the Investor Relations section of our website, brighthorizons.com. As a reminder to participants, any forward-looking statements made on this call, including those regarding future business, financial performance and outlook are subject to the safe harbor statement included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause the actual operating and financial results to differ materially and should be considered in conjunction with the cautionary statements that are described in detail in our earnings release, our 2023 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 to these non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available under the IR section of our website at investors.brighthorizons.com. Joining me on today's call are Chief Executive Officer, Stephen Kramer; and our Chief Financial Officer, Elizabeth Boland. Stephen will start by reviewing our results and provide an update on the business. Elizabeth will follow with a more detailed review of the numbers before we open it up to your questions. With that, let me turn the call over to Stephen.

Thanks, Mike, and welcome to everyone who's joined the call. I am really pleased with our performance in the second quarter and first half of 2024. Revenue growth remained strong in both full service and back-up care and adjusted EPS growth of nearly 40% outpaced our expectations through better operational efficiency across all three of our segments. With the outperformance in the first half of the year and continued progress expected for the remainder of the year, we are raising our full year guidance on both the top and bottom line. So to get into some of the specifics on the second quarter. Revenue increased 11% to $670 million, with adjusted EBITDA up 25% to $103 million and adjusted EPS growing 38% to $0.88 per share. In our Full Service Child Care segment, revenue increased 11% in the second quarter to $507 million. We opened seven centers in the quarter, including new client centers for Walmart, Hormel Foods, United Health Services and the University of Arkansas for Medical Sciences. Enrollment in centers opened for more than one year increased at a mid-single-digit rate in Q2 and average occupancy percentage stepped up to the mid-60s. The U.S. continues to see strong performance with mid-single-digit enrollment growth, driven by high single-digit growth in our younger-age groups and mid-single-digit growth in the preschool age group. Outside the U.S., enrollment increased at a low single-digit rate. The U.K. continues to lead growth internationally with mid-single-digit enrollment growth while the Netherlands and Australia continue to have higher-than-average occupancy levels, and as a result, more limited expansion in enrollment. Specifically on our U.K. business, after a challenging couple of years, the first half of 2024 has been marked by steady enrollment gains, increased permanent staff and reduced reliance on third-party agencies, along with moderating inflation. The initiatives we've put in place over the last 18 months have significantly improved the efficiency of labor, delivering center operating improvements more quickly than we anticipated. Although the U.K. will continue to be a headwind to our overall full service profitability in the coming quarters, the progress we have seen this year gives me confidence that our strategy is working and our U.K. team will continue to progress towards recovery to pre-pandemic performance levels. Let me now turn to back-up care, which delivered another strong quarter, growing revenue 15% to $136 million. In addition to solid utilization across our various use types, we also continue to expand our client base with Q2 launches, including Honeywell and the Georgia Institute of Technology. Use growth in our traditional care network remains solid, underpinned by continued expansion of the number of client employees utilizing their back-up care benefit. Center-based care remains the predominant care type and continues to grow faster than in-home, even as center occupancy continues to grow. Encouragingly, we started off the seasonally high use summer period on a good note with solid use in June continuing into July. We remain very excited about the opportunity in the backup care segment as we work to leverage our technology and marketing investments and innovative care types to best serve our clients and their employees. Our Education Advisory business grew to $26 million, increasing 2.5% over the prior year, in line with our expectations for the quarter, but well below the longer-term growth opportunity we see for this segment. We continue to add new clients to the portfolio, notably launching GlobalFoundries and International Paper. While growth in participants remain challenging, the team is working diligently on product and packaging as well as marketing with the goal of driving greater client adoption and client employee participation in 2025 and beyond. Before I wrap up, I want to congratulate and celebrate the recent graduation of nearly 400 Bright Horizons employees in our Horizons Teacher Degree program. I had the honor of speaking at this year's commencement and I want to applaud this tremendous accomplishment for our educators. It takes a significant amount of time, effort and commitment to earn a CDA, AA and BA while working as an early childhood educator in a Bright Horizon Center. With more than 80% of our centers having an enrolled learner, this program is truly a win, win, win. Our teachers advance their education and grow their careers with us. The families we serve benefit from the highest quality care and education and Bright Horizons develops an even more qualified and engaged workforce. In closing, I'm pleased with our strong first half of 2024. We have executed well against the goals we set for the year and are set up well to increase our guidance. Specifically, we now expect revenue growth for the year of approximately 11%, a range of $2.65 billion to $2.7 billion and adjusted EPS in the range of $3.30 to $3.40 per share. With that, I'll turn the call over to Elizabeth, who will dive into the quarterly numbers and share more details around our outlook.

Thank you, Stephen. To recap the second quarter, overall revenue increased 11% to $670 million, adjusted operating income of $69 million or 10% of revenue increased 52% over 2Q of '23, while adjusted EBITDA of $103 million or 15% of revenue increased 25% over the prior year. We ended the quarter with 1,032 centers adding nine -- sorry, seven new and closing 19 centers in the second quarter. To break this down a bit further, full service revenue of $507 million was up 11% in Q2 and at the high end of our expectations on increased enrollment and tuition pricing. As mentioned, enrollment in our centers opened for more than one year increased mid-single digits across the portfolio. Occupancy levels averaged in the mid-60s for Q2, stepping up sequentially given the traditional enrollment seasonality. U.S. enrollment was also up mid-single digits, while enrollment outside the U.S. increased in the low single digits over the prior year. In the center cohorts that we've previously discussed, we also continued to show improvement over the prior year period. In Q2, our top-performing cohort, defined as above 70% occupancy improved from 43% of our centers in 2Q of '23 to 51% in 2Q of '24. And our bottom cohort of centers, those under 40% occupied, now represents 10% of centers as compared to 14% in the prior year. Adjusted operating income of $33 million in the Full Service segment increased to $20 million over the prior year. Higher enrollment, tuition increases and improved operating leverage more than offset the $9 million reduction in support that we received from the ARPA government funding program in 2Q of '23. While the U.K. full service business continues to be a headwind to the overall segment profitability, we have seen good progress in reducing the losses with improved staffing, the continued enrollment gains and the rationalization of our center portfolio that we have discussed on prior calls. Turning to Back-up Care. Revenue grew 15% in the second quarter to $136 million ahead of our expectations of 10% to 12% growth on stronger overall use. Adjusted operating income of $32 million in Q2 of '24 or 23% of revenue, was also ahead of our expectations on operating leverage from the higher utilization. Lastly, our Educational Advisory segment reported $26 million of revenue and delivered operating margin of 18%. Operating margins contracted in Q2 and the first half of 2024 over the prior year due to the investments that we are making in the team and the product suite. Interest expense of $12 million in Q2 of '24 reflects lower average borrowings, offset by higher overall net rates on our outstanding debt as compared to Q2 of '23. The structural effective tax rate on adjusted net income was 27.8%, just a touch lower than the prior year. Turning to the balance sheet and cash flow. We generated $110 million in cash from operations in the second quarter and $226 million for the first half of '24 compared to $180 million for the first half of '23. We made fixed asset investments of $23 million in the second quarter and $42 million for the first half of 2024 compared to $40 million for the first half of 2023. We ended the quarter with $140 million of cash and reduced our leverage ratio to 2.2x net debt to adjusted EBITDA. And now moving on to the 2024 outlook. As Stephen previewed, we are increasing our 2024 full year guidance for revenue to a range of $2.65 billion to $2.7 billion and adjusted EPS to a range of $3.30 to $3.40 a share. This increase in both revenue and EPS broadly reflects the flow-through of our better-than-expected performance in the first half of the year and continued strength anticipated in the backup segment for the key summer season. In terms of our updated segment growth outlook for the year, we now expect full service revenue to grow roughly 10% to 12%, backup care to grow 12% to 14% and ed advisory to be relatively flat compared to the prior year. As we look specifically to Q3, our outlook is for total top line growth in the range of 9% to 11%. This reflects full service growth of 9% to 11%, backup growth of 11% to 13% and an advisory to be relatively flat. In terms of earnings, we expect Q3 adjusted EPS to be in the range of $1.04 to $1.09 per share. So with that, Raju, we are ready to go to Q&A.

[Operator Instructions] The first question comes from the line of George Tong with Goldman Sachs.

You increased your full year guidance and mentioned some drivers of that increase, including the 2Q outperformance and strength in backup. Can you elaborate on some of the surprises to the upside that you saw in the quarter? And what your assumptions are around occupancy rates that you're baking into the guide?

Sure. So let me just make a note, occupancy [indiscernible]. So in the second quarter, the performance was, as you say, higher than our expectations, and it really comes down to both the full service and back-up segments. We did call out some of the particulars in the U.K., which we would identify as being earlier than expected realization of some of the cost savings that we have been pursuing, particularly as it relates to the use of agency staff and having more of a permanent staff component to the labor in the U.K. That, coupled with the steady enrollment gains has allowed us to essentially sooner than expected be realizing some improvement in the operating performance there. And that, coupled with the higher use in backup and the mix of use in the backup business also drove a little bit better EBIT performance even on the sort of modest revenue outperformance. As we look out to the rest of the year, we saw mid-single-digit enrollment growth in full service. We would expect that to broadly continue over the rest of the year. The full service business has a step down and seasonality of full service is such that there's a bit of a step down in the enrollment, absolutely, in the quarter. But in terms of the gains year-over-year, it would sustain in that mid-single digits range, we would expect. And from a backup standpoint, we are -- as we outlined, we ticked up the revenue guide given the strength of the way that the summer started on use.

Great. That's very helpful. And just the point on occupancy rates, what percentages are you assuming for the rest of the year and exiting into next year?

Yes. So we are -- at this point, we would be looking at with a mid-single digit growth compared to where we ended last year. We'd be in the low 60s to mid-60s utilization for the full year.

Next question comes from the line of Manav Patnaik with Barclays.

Elizabeth, just on the backup guidance, 11% to 13%. Can you just talk about the -- you talked about July looking pretty strong. Just talk about the visibility you have in the third quarter, at least for that number? And 11% to 13% sounds right, but I think it's a tough comp as well. So just any color there?

Yes. As you say, we had revenue growth, I think, in the third quarter last year that was almost -- it's almost 30%. And so we do have a pretty tough comp. It was 25%, I think, in the second half. But overall, it is a challenging comp, but pretty strong sequential growth that we're expecting. And as you ask about how much visibility we have, obviously, we're just seeing the July results coming in and have seen very solid use so far in the quarter, which is what gives us the conviction around that kind of a revenue guide and a bit of flow-through on the earnings that we would see in the third quarter. Hence, the sort of a modest uptick to the earnings guide there.

Okay. Got it. And then just like you kind of helped us with the quarterly cadence on the revenue growth by segment. Can you just help us with the margin expectations for third quarter and the full year?

Yes. So maybe just continuing with backup. The backup business improves as the year goes into the third quarter. The seasonal -- not only is the revenue at a seasonal peak in Q3 but so is the earnings and it tapers some in the fourth quarter. But in the second half -- third quarter, certainly in the second half, we would expect back-up to be in the low 30s. There's a couple of factors for that. Obviously, the use performance and the operating leverage that we get from that takes us to the higher end of the range. And we've also -- as we've taken the overhead cadence to a more ratable view for the year, there's been a little bit of a headwind in overhead for backup in the first half. And then there's a little bit of a tailwind that gives us a couple of hundred basis points of tailwind that puts that margin a few points over 30% is what we would be looking at. The full service business steps down as mentioned seasonally. We have the enrollment turn with children, the older children graduating and going to elementary school and sort of backfilling that through the year. So there's a natural step down from where we reported this quarter in the 6.5% range. We would see that step down naturally because of the seasonality. And then the converse effect of that of a bit more overhead being captured in full service in the second half than was in the first half with about -- it's about 50 to 75 basis points a quarter. And so the swing from Q2 to Q3 explains about 100, 125-or-so basis points of shift there from the first -- from Q2 to Q3, and then we see that a similar range, ending having a low to mid-single digits for the second half -- for the year and in the year in that low- to mid-single digits range. They're not aided by...

Next question comes from the line of Andrew Steinerman with JPMorgan.

Elizabeth, what is the current percentage wage inflation year-over-year of the Bright Horizons teachers and staff? And do you feel like the percentage tuition increases will be ahead of wage increases on a going-forward basis?

Yes. So we are -- what we're seeing for wage inflation is roughly in the 4% range. And it's something that has been a little bit -- candidly a little bit firmer. Inflation has persisted a bit in that wage environment. We're seeing a better labor supply environment that's been improving, but we're still seeing some strength in the wage inflation. So 4% is what we are seeing broadly average. We have been able to price ahead of that by about 100 basis points on average. That's been our experience this year. And I think as much as we have the visibility, it's early to be guiding for '25. But broadly speaking, we would think we would be able to sustain that kind of 100 basis point gap, but it's a bit early to be predicting, specifically whether it would be what rate that would be at, but we're seeing that pricing power.

That's great. Could I just ask a quick follow-up on that. You said labor supply of teachers and staff seems to be improving. Is that because maybe other centers are closing, not Bright Horizons centers but other centers are closing kind of post ARPA? Or do you feel like there might be more new entry into early childhood education or less pull away from childhood education to other industries? What's driving the labor supply?

Yes. So I think there's a few things at work here. I think, first, I think we are just candidly getting better at getting an even greater share of those who are available and interested in the field and that comes in two flavors. The first is folks who are already in the field and attracting them away from their current employee. And then secondly, again, because of our education program and the wages that we offer, being able to incent people to come into the field and ultimately be growing our own. So going out, hiring for attitude, training for skill and using our programs in that way. So I would say it's that combination that really has been helpful for us in particular, to be able to attract more educators to Bright Horizons.

Next question comes from the line of Jeff Meuler with Baird.

Can you talk maybe through some of the things you're doing from an initiative perspective to better capture, I guess, the seasonal summer demand? I know Steve & Kate's is a part of it, but your CAGR over the last three years looks like it's pretty incredible for Q3. And then just beyond the tough comp, any other rate-limiting factors we should consider. I don't know where you're at in terms of capacity constraints or anything else?

Yes. So I would say that, first, the summer is certainly increasing in terms of the peak through each of the years at this point. And so we're really excited about the different use types that we have. But certainly, in the summer, we're seeing a lot of use in centers, and we're seeing a lot of use in camps. And I think that we have been very thoughtful about how to get ahead of that demand, that increasing demand to make sure that we're able to fulfill in that way. So I would say in terms of rate-limiting steps, I feel really good that we have a lot of good, personalized outreach campaigns going on within our client bases and at the same time, making sure that we're doing that in a way that is reflective of the increasing amount of supply that we're building to make sure that we can accommodate it. So overall, I feel really good about the summer. We have some visibility, obviously, into July, and -- sorry, into August and are now looking very positively about what this summer should shape up to look like.

Got it. And then on Full Service, the enrollment step down that you saw seasonally at the beginning of this summer, does it look pretty similar in terms of order of magnitude to prior summers and then as we think about back-to-school, are you assuming kind of like the historical average? Or is there any sort of benefit assumed because you have greater mix of younger children in the mix relative to the longer-term trend?

Yes. The trend does look fairly similar to historic patterns. We are slightly overweighted in infant toddler but that has diminished as the preschool enrollment has been coming in. And so we're expecting to see, I think, a more -- it's coming back to the norm over time at a pretty consistent view into the fall. I think what's positive about all of the steadiness of the enrollment gain over the last couple of years is that by enrolling children in all of the age groups, we do build a good supply of future preschoolers with the infantile enrollment that we have. And then we have space to take all the preschoolers we can market to and also from Stephen's comment be able to take backup care. Even as centers are getting more enrollment, we're able to take more backup care in centers as that demand persists.

Next question comes from the line of Josh Chan with UBS.

Congrats on a good quarter. I guess on the Full Service margin front, could you bridge us from last year's 3%; this year's 6.5% in terms of factors that are most helpful? Was it utilization? Was it the 100 basis point gap between wage and tuition, did the U.K. help? Just kind of help us understand what were the most impactful drivers there?

Yes. I think the headline of the kind of leverage that -- the opportunity that exists in Full Service is that enrollment is the -- it has the most momentum to driving that improving leverage. We did have a headwind from ARPA, obviously, that took down what we even realized. But with the average of mid-single digits enrollment gain and the continued pricing power, those are the main drivers. I think the U.K.'s improvement and the improving cost structure that goes along with that amplified -- sort of amplified the benefit in the quarter in particular, but I'd say those are the primary drivers. Just as a small note, the overhead that we've talked about, and after we get through this year, it will just be baked into the way that we look at it. But there is a little -- there's about 50 to 75 basis points or so of benefit in Q3 that is related to how the overhead is spread between the segments in the first half of the year versus the second half. So there's more of a headwind for Full Service in the second half, and it has this little bit of benefit of 50 to 75 bps in Q2. So that's the only -- that's the other thing I'd point out on that 6.5% or so that we reported.

And then on the U.K., what's the level of embedded profitability improvement now within the updated guidance that you just put out?

Yes. So as a reminder, we talked about the challenge in the U.K. Full Service business in particular. And last year, that business lost around $30 million, and we had come into this year looking for -- frankly, I think we were not only looking for improvement, but expecting that improvement to be fairly back-end weighted. We knew that the beginning part of the year would be part of the ramping in and realizing some of the benefits of the initiatives that have been underway. Some of those have come sooner than expected, but we did plan for improvement throughout the year. At this point, with this outperformance, the earlier outperformance of that, we probably be in the mid-teens from $30 million to close to half that is what is assumed in the outlook for the rest of the year. So it's still a headwind. Still it was over 200 basis points last quarter, probably 100 to 200 basis points in the current quarter still. So it is still a headwind but improving, and we feel good about that progress.

Next question comes from the line of Jeff Silber with BMO Capital Markets.

Wanted to focus on the center closures. If I look over the past few quarters, it looks like you've been ramping up the number of centers that you're closing. I'm assuming that they're mostly in this lower occupancy cohort, if you could just confirm that. And I'm just wondering how they disperse geographically. And if you could just also tell us where you think you'll end up the number of years. Is the number of centers that are going to be closed this year?

Yes. So we had started out the year looking at closing somewhere between 40 and 50 centers, and I would say, we're still in that range. We've closed about 30 so far in the first half. First quarter was a little bit more U.K. weighted. Second quarter is a little bit more U.S. weighted. But broadly speaking, of those closures, about 40% are in the U.K. and 60% in the U.S. To answer your question about where are they in the cohorts, I think there is a mix of them in the lowest-performing cohorts, the under 40% occupied. But there still are a number, particularly those that we've circled up in the U.K. that we're in that middle cohort because the economics of some of those centers, even some that were reasonably well enrolled or in that 40% to 70% enrolled still were not economically feasible in terms of the overall occupancy that we could ever attain. Some of the centers in the U.K. are quite small and depend on a very high level of occupancy to be economically feasible. So we've been judicious about what we're closing and trying to look at where we can both combined and we call it rationalization in part because there are locations where we can combine families into nearby centers or we're opportunistic because there's a lease action that allows us to exit a lower-performing center and combine enrollment to make others more feasible and it may not always be just the underperforming -- the most underperforming from a utilization standpoint.

All right. That's really helpful. And if I could switch gears to some of the new center openings. I know it's a long sales cycle, but we're starting to see signs of a cooling labor market. And I'm just wondering how your conversations are going with potential new customers. Are they still really excited about potentially opening up new centers? Or do you see some of them holding back given what's going on in the labor market?

Yes, it's a great question. So I think, look, the conversation with prospective center clients continue to be strong. There continues to be good interest out there in terms of at least exploring, understanding that this is both a long sales cycle but it also is reflective of long-term decision-making because, again, once someone opens a center, they generally are opening that center with a long-term commitment. So I would say that last quarter, for example, was a number of the openings were transitions. This quarter, a number of them were newbuilds. But in terms of the sort of texture of the pipeline, I would say we certainly are more heavily weighted towards transitions. So those are existing centers that are self-operated, typically by health care organizations or universities. And so again, I think those conversations continue to be strong on the basis that they've been through a very difficult period of operations. By and large, they recognize that they may benefit from having an expert operator. And so rather than closing, which they are not minded to do, they are considering a third-party operator like ourselves. And we're very well positioned as they make those decisions to capitalize on it given our strong leadership position.

Next question comes from the line of Stephanie Moore with Jefferies.

This is Harold Antor, on for Stephanie Moore. On the U.K. business, in terms of pricing conversations that you're having there and now you're seeing some of that enrollment, if you could just elaborate a little bit more. And then if you could -- what's the average occupancy rate that you have in that geography?

Yes. I think if I caught the question right, the average occupancy in the U.K. is a little bit lower than the overall average. Our overall average is in the low 60s to mid-60s. Actually, in the second quarter, it's on the -- in the mid-60s, but for the year would be low to mid-60s. The U.K. is, as I say, a little bit lower than that on average by a couple of points. So not dramatically different. The centers tend to be a little bit smaller on average. So the numbers of children that go along with that utilization is somewhat different. From a pricing standpoint, it's actually very similar to the overall averages where we've been able to see price increases. Although the decisions are made locally and very individually for centers on average, we've done about a 5% increase in the U.K. as well. We certainly have seen there from a wage standpoint, a similar dynamic to the U.S. where we have seen wages escalating faster than price in the past couple of years and been catching up on that with the pricing decisions we've made recently. But the -- I think the market there has been more challenged on the labor side, and we were more reliant on agency staff. So our labor costs were a bit higher because of the composition of the labor and now that's coming more into a right-sized structure.

[Operator Instructions] Next question comes from the line of Toni Kaplan with Morgan Stanley.

Maybe just following up on the topic of price increases. I guess when do you start communicating next year's price increases to clients? Is it just January 1 they get the bill? Or do you discuss that sort of ahead of time? And also with regard to camp, do you typically raise camp prices by a similar percentage to the school increases?

Yes. So Toni, a large number of our price increases go into effect in January, and we tend to like to give families, call it, 60 days notice ahead of when that price increase is going to happen. I do think it's important to recognize that as children age up, right, their actual out-of-pocket tuition fee goes down. That's across the industry, right, as the child ages up and the ratios expand, we do see a natural decrease. So while we do provide them the insight on the increase, call it, 60 days ahead, they're also recognizing in many cases, as their child ages up, a lower actual out-of-pocket expense associated with our service. So I would say, 60 days is the standard. In terms of camps, again, we operate under the brand of Steve & Kate's and the Steve & Kate's camp generally is during the summer, although we are offering more schools out type break camps as well. That is typically only aligned with back-up care for our summer camp. Again, typically, those decisions happen annually, and they happen ahead of when the season actually starts. So it's not really about communication as much as the price is shared when individual retail families are interested in the service.

And the only thing I'd add to that on the client question is, we typically are going through an annual budget conversation with clients who are sponsoring a center, and they are participating with us on what the relative support that they want to provide for a center. So we will outline what we see as the price increase that's necessary given the cost environment and particularly the labor environment and the expected enrollment in the center and what that translates to in terms of their subsidy, and then the client can make a decision about if they want to support more or cost share more with the families. And so how that price is affecting the families is ultimately a joint decision that we are making with the clients. And so that's more than the 60 days ahead of time because that budget cycle tends to -- if it's on a calendar basis, it would be going on anywhere from now until the late fall.

Yes. Understood. And then Elizabeth in prior six quarters, you closed a net of 37 centers but your capacity had stayed at 120,000. In this quarter, you closed 12 centers net but lowered capacity by 5,000. And so I was wondering, if they were particularly large centers that were closed this quarter? Or was this just rounding and a function of that?

Just rounding, Toni, yes. The closing centers capacity has been, as you would imagine, on a net basis solely shrinking with those closures, and we just rounded down to 115.

Next question comes from the line of Faiza Alwy with Deutsche Bank.

I wanted to follow up on the question around full service margins. And I was wondering if you could share with us like how the U.S. centers are performing from a margin perspective? And secondly, any color you can provide around margins for the various cohorts. I think at one point, you had talked about the cohorts that are above 70% enrolled are at margins that are in line with pre-COVID levels or near. So give us just some color on how things have trended, just focusing on the U.S. business, in particular?

Sure. So I'll -- we don't break out the margins specifically by geography, but I think having outlined that the full service margins are experiencing a headwind from the U.K. business in the range of 100 to 200 basis points. I think that gives you some insight into the U.S. performance being better than the U.K. by some measure. And I think other than the general size of our other international businesses, both the Netherlands and Australia, they're relatively smaller components of full service and so they don't have a fully leveraged or rationalized overhead structure for the size of those businesses as we continue to scale. And so in that way, the U.S. full service business is at the front end of the overall margins and probably best to just correlate it with the U.K. headwind to get some sense of that. I think as we look ahead to the rest of the year and we had this step down of performance to low single digits compared to the first half of the year. But overall, we would be -- from a cohort standpoint, as you say, the top-performing centers, those that are over 70% occupied are effectively back to where we were operating in the pre-COVID era. Those centers -- obviously, that group of centers continues to evolve and change. So some centers that have been in the mid-cohort and have improved their enrollment trend in the top cohort, now there's an ever-changing mix of centers that are in each of these cohorts. And so the performance isn't static, but that top-performing group is effectively back. And then the middle cohort, which is those that are 40% to 70% occupied, they're making good progress. Obviously, the overall average is in the low 60s to mid-60s enrollment, that mid cohort would be a bit behind that. But we would still see them exiting '24 in a mid-single digits plus EBIT margin range. And so the headwind in full service is really primarily attributable to those that are in the lowest-performing cohort and continuing to get progress on getting those -- getting enrollment and having more centers come into the middle group and rationalizing the portfolio where we don't see a path forward will help us continue to make progress back to that high single to 10% operating margin in full service over time.

Great. Very helpful. And then I just wanted to follow up on backup. You alluded to mix of business that maybe helped margins this quarter. So just remind us about the mix sort of what might be some of the factors there in back-up?

Yes. The primary reference there is the amount of use that we're able to serve in centers and in our own controlled providers versus in-home care. And so that mix has continued to migrate away from in-home back to really the levels that we had seen pre-COVID, which would be something like 1/3 of the use being in-home and 2/3 not being in-home. And so that improving mix has driven that just relatively lower provider fee mix, which is the sort of cost of delivery.

Okay. Thank you very much for joining the call this evening. I hope everyone has a wonderful rest of the summer.

Thanks, everyone.