Bright Horizons Family Q3 2026 Earnings Call Transcript
Bright Horizons Family (NYSE:BFAM) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Bright Horizons Family reported a 5% revenue growth in Q3 2026 to $841 million, with adjusted EPS increasing by 15% to $1.80.
Backup Care revenue rose 13% to $286 million, driven by increased usage among employees, while Full Service revenue grew 1.3% to $522 million but faced challenges with lower enrollment and center closures, especially in the UK and Australia.
The company revised its full-year guidance, now expecting revenue of approximately $3.07 billion and adjusted EPS between $4.98 and $5.03, citing dampened growth in Backup Care due to high utilization rates and slower new family starts in Full Service.
Operational highlights include a strong focus on improving safeguarding practices, especially in response to regulatory notices in the UK, and strategic alternatives being explored in the challenging Australian market.
Management expressed confidence in long-term growth prospects, emphasizing ongoing initiatives such as expanding care options and enhancing technology-driven personalization to drive future engagement and utilization.
Full Transcript
OPERATOR
Greetings and welcome to the Bright Horizons Family third quarter 2026 earnings call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. Please note this conference is being recorded. I would now like to turn the call over to your host, Michael Flanagan, GVP Strategic Finance and Investor Relations.
Please go ahead.
Michael Flanagan (GVP, Strategic Finance and Investor Relations)
Thanks, Kerry, and welcome to Bright Horizons Family third 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, investors.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 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, 2025 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 today. We also refer 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, investors.brighthorizons.com. Joining me on tonight’s call is our Chief Executive Officer, Steven Kramer, and our Chief Financial Officer, Elizabeth Boland. Steven will start by reviewing our results and will 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 Steven.
Steven Kramer (Chief Executive Officer)
Thanks, Mike, and thank you to everyone joining us this evening. We delivered a solid third quarter with revenue growing 5% to 841 million and adjusted EPS growing 15% to $1.8 across our portfolio of services. The third quarter is an important period and is illustrative of how we support working families at different stages of their lives. In Backup Care it is our peak season for use and in Full Service it marks the start of a new school year when preschoolers move up to elementary school and many new families join our centers.
Getting into details on the recent quarter, I will start with Backup Care and then walk through Full Service including how the fall enrollment season played out. In Backup Care, revenue grew 13% to $286 million, in line with our expectations and on top of strong growth in the third quarter of each of the last four years. Growth was primarily driven by more employees using their benefit along with an uptick in use per user, with the strongest demand in the care types serving families with school-age children on summer break, including camps and tutoring.
Meeting that demand starts well before school lets out. Heading into the busy summer season, our teams expanded our vetted provider network across care types, adding many new and, in many cases, exclusive partners in camp centers and in-home care, adding capacity in our highest-demand geographies, and extending our reach into new markets where our client employees live and work. That preparation allowed us to deliver care where and when families needed it, resulting in a high fulfillment rate throughout the period of demand.
At the same time, our marketing and technology teams continue to advance the personalization initiatives that build awareness and drive use, along with the booking experience that allows families to secure care quickly and easily. The breadth of our care options, the quality and scale of our network, and the ease of booking through our platform are real competitive advantages, and they are why employers partner with Bright Horizons Family to provide this important benefit.
As we have transitioned into the fall, we are mindful that many client employees are ahead of use within their annual use banks. Given their strong utilization year to date, we expect this to have a dampening effect on growth towards the end of the year, and we now anticipate 13% revenue growth for the full year. Looking over the long term, with penetration of our eligible employee base still below 5%, we see continued runway to extend participation and the breadth of use cases.
Our focus is on broadening what the benefit can do for families and making it easier to use. A few examples include our new offering Care Advising, which supports families with complex neurodiversity and senior care needs, a conversational AI-supported consumer navigation experience, and a more connected experience across our services through One Bright Horizons. Together, these and other initiatives support our long-term growth target of 11% to 13%.
Turning to Full Service, revenue grew 1.3% to $522 million. Tuition increases were partially offset by modestly lower enrollment, including continued contraction in Australia, and by the impact of center closures. As we continue to rationalize the portfolio, we added two centers in the quarter, including a transition for a leading academic health system. Client occupancy averaged in the mid-60% range in the third quarter, a seasonal step down from the second quarter.
Excluding Australia, enrollment in centers open more than one year declined roughly 50 basis points, while Australia’s contraction was an additional roughly 100 basis point headwind to our overall enrollment last quarter. Given the slowing pace of enrollment growth we had seen develop midyear across our markets, we tempered our enrollment growth outlook for the second half of the year. Retention of enrolled families has remained steady. That said, new family starts this fall have been softer than we anticipated, with the biggest change from our enrollment expectations being in the UK. In late June, the UK child care regulator published a group-wide notice requiring us to strengthen safeguarding governance and oversight across our UK nurseries.
The impact of this was limited over the seasonally quieter summer months, but we did not sufficiently anticipate the duration or full effect it would have on new families’ decisions in the fall enrollment season. In mid-September, the regulator issued an updated notice that recognized our progress but nonetheless extended the review period. Because the fall enrollment season was only beginning late in the third quarter, we expect the larger impact on enrollment will be in the fourth quarter and until the notice is lifted.
Our focus is and always has been on safeguarding and the safety and well-being of the children in our care. This underpins our ability to generate and convert more inquiries, retain families as their children move through our programs, and partner with our employer clients to drive enrollment. We will also continue to optimize our portfolio, positioning our centers to serve employees of our client partners and working families where they live and work, as well as continue to close underperforming centers.
In Australia, the operating environment remains challenging. A combination of real estate developer-driven supply growth alongside softening demand has pushed the industry, as well as our own occupancy, to multi-year lows. Our results in Q3 were in line with our expectations, but we have not seen signs that conditions will improve in the near term. Following an updated assessment of the market’s prospects, we recorded a non-cash impairment this quarter, which Elizabeth will cover.
We are actively reviewing strategic alternatives in this market and, while we would defer further comment until we have something definitive to share, we are moving with urgency. At the same time, we continue to support our Australian educators, who remain focused on delivering high-quality care and education for the children and families we serve. In Education Advisory, revenue was 33 million, with continued growth in College Coach offset by lower participant use in EdAssist.
Before I wrap up, I want to reflect on a particularly special moment for Bright Horizons Family. This fall we came together to honor our 40th anniversary. It was incredibly meaningful to have our founders, former leaders, and colleagues from across Bright Horizons Family together in one place, reflecting on how far we have come over four decades and the positive impact we have had on the lives of others. What began 40 years ago with a simple belief in supporting working families and employers has grown well beyond our first centers into a broad portfolio of education and care solutions.
Over those four decades we have navigated economic cycles, a global pandemic, and the changing needs of families and employers, and our ability to adapt while continuing to deliver for the families and clients we serve has been an absolute constant through it all. The commitment to making a difference in the lives of children, families, learners, and employers remains at the heart of who we are. I left incredibly proud of what this organization has built together and confident in our ability to capitalize on the opportunities ahead.
In summary, this quarter showed continued strength in Backup Care and our employer-sponsored model, as well as opportunities for improvement. We are taking actions to strengthen safeguarding practices, rebuild enrollment in Full Service, and address challenges in Australia, while continuing to invest and benefit from the long-term growth and opportunity in Backup Care. Notwithstanding our solid results through the third quarter, our revised outlook reflects the change in our expectations for the fourth quarter.
As a result, we now expect revenue to be approximately 3.07 billion and adjusted EPS in the range of $4.98 to $5.03 per share. With that, I’ll turn the call over to Elizabeth, who will walk through the quarter in more detail and share more on our outlook.
Elizabeth Boland (Chief Financial Officer)
Thank you, Steven, and hello to everyone who has joined our call tonight. I’ll begin with some overall financial highlights. Revenue for the third quarter grew 5% to $841 million, driven by continued top line growth in both our backup care and full service segments. Adjusted operating income increased 5% to $130 million. An adjusted operating margin of 15.5% was consistent with the prior year. Quarter adjusted EBITDA increased 5% to $163 million, representing an adjusted EBITDA margin of 19.4%.
Also in line with last year and on the bottom line, adjusted EPS of $1.80 increased 15%, reflecting both operating income growth and the leverage we have realized from our share repurchases over the past year. Taking a closer look at each of our 3 business lines: in Backup Care, revenue grew 13% in the quarter to $286 million, driven by growth in users and led by our programs for school-aged children over the summer months. As Steven had outlined, adjusted operating income of $101 million represents an operating margin of 35%. As is typical, the third quarter is our seasonal high point for backup use and margins, and we continue to expect full-year operating margins in the range of 28% to 30%, consistent with the outlook we provided earlier this year.
In Full Service, revenue of $522 million grew 1.3% over the prior-year quarter, driven primarily by tuition increases and offset by an approximately 200 basis point headwind from net center closures and an approximately 100 basis point headwind from enrollment declines in our Australia operations. We ended the quarter with 979 centers, opening two, as Steven said, while closing 11 centers, four of which were in Australia. Breaking down the enrollment stats a bit further, enrollment in centers that were open for the last year declined roughly 50 basis points in the third quarter.
Excluding the roughly 100 basis points of headwind from the enrollment contraction in Australia, occupancy declined seasonally from the second quarter and averaged in the mid-60% range. With respect to the center cohorts we have discussed on prior calls, we continued to drive improvement at the lower end of the portfolio. Our top performing cohort, centers above 70% occupancy, represented 42% of these centers in the third quarter. Our bottom cohort, i.e., those with below 40% occupancy, improved to 9% of these centers from 12% in the prior year, reflecting both enrollment progress in centers moving up the occupancy curve as well as the impact of exiting underperforming centers.
Enrollment continued to grow in our middle and bottom cohorts, while the annual transition of preschoolers to kindergarten weighed on our top cohort, resulting in modest overall enrollment decrement in these centers, which still average more than 80% occupied. The total Full Service adjusted operating margins decreased 25 basis points to 3.7% in the quarter. Excluding Australia, operating income margins would have reflected an increase of 40 basis points over the prior year.
Operating leverage from tuition increases ahead of wage growth and improved operational efficiency were offset by the lower enrollment. As Steven previewed, following our annual assessment of goodwill and other intangible assets for potential impairment, including an updated review of the longer-term outlook for our Australian operations, we recorded a non-cash goodwill impairment charge of $290 million and other intangible asset impairment charge of $4 million in the third quarter, all related to our International Full Service reporting unit where Australia is grouped.
Turning to Educational Advising, revenue of $33 million declined slightly from the prior-year quarter while adjusted operating margin was 29%. I’ll cover off a couple of other items on the P&L. Our net interest expense on debt borrowings of $17 million increased $7 million over the prior year and was up $3 million sequentially due primarily to higher average balances outstanding and interest rates. The structural effective tax rate on adjusted net income was 28.25% in the third quarter, which is higher than 2025 due primarily to the losses in Australia that are not currently deductible for tax purposes.
Relative to the balance sheet, through September of this year, we’ve generated $208 million in cash from operations, have made net fixed asset investments of $69 million, and have repurchased $560 million of stock. We ended Q3 with $119 million of cash and trailing net leverage of 2.4x net debt to adjusted EBITDA. Now moving on to our updated 2026 outlook. As Steven previewed, we are revising our full-year guidance and we now expect revenue to approximate $3.07 billion and adjusted EPS to be in the range of $4.98 to $5.03 a share. Looking now at each segment for the full year: in Full Service, we expect reported revenue to grow approximately 2%, reflecting tuition increases offset by lower enrollment, approximately 200 basis points of headwind from net center closings and approximately 100 basis points of headwind from Australia.
In Backup Care, we expect growth of approximately 13% for the full year. In the net advisory, we expect revenue to be approximately flat with 2025. We are expecting $61 million to $62 million of interest expense for the full year and an adjusted effective tax rate of 28.25%, with weighted average diluted shares of 51 million for the full-year period. This full-year outlook translates into Q4 overall revenue in the range of $730 to $740 million and adjusted EPS in the range of $1.14 to $1.19 per share.
So with that, Kerry, we are ready to go to Q&A.
OPERATOR
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Manav Patniak with Barclays.
Fronan (Analyst at Barclays)
Hi, good afternoon, this is Fronan on for Manav. Can you cover, with the UK and Australia facing the specific headwinds you covered, how did enrollment trend in the U.S. through the fall enrollment season and what were the key drivers of what you saw, please?
Michael Flanagan (GVP, Strategic Finance and Investor Relations)
Can you turn up the volume? The question was: what is enrollment?
Fronan (Analyst at Barclays)
U.S. enrollment in the third quarter.
Michael Flanagan (GVP, Strategic Finance and Investor Relations)
In the third quarter. Yep.
Steven Kramer (Chief Executive Officer)
Yep. So overall, as mentioned on the call, the enrollment in the third quarter, excluding Australia, was down about 50 basis points. And so the enrollment, that detriment is mostly coming from the U.S., so there’s a bit of a detriment in the U.S., a bit higher than outside the U.S.
Fronan (Analyst at Barclays)
Got it. And then any specific drivers to call out on that, please?
Steven Kramer (Chief Executive Officer)
I didn’t hear what he said.
Michael Flanagan (GVP, Strategic Finance and Investor Relations)
Drivers of U.S. decrement.
Steven Kramer (Chief Executive Officer)
Yeah. So the drivers of the decrement are mainly in new starters, and we have experienced pretty good retention on the family side, on families who are in the programs that we have. But the fall enrollment cycle is one where we see preschoolers graduating out into elementary school, and then we are in a rebuilding enrollment mode. So it’s primarily on a pace of new starters that we are seeing a little bit of a shortfall to what we had expected.
Elizabeth Boland (Chief Financial Officer)
And I think the only other thing I would add is that certainly the cycling of the enrollment is really in that top cohort, right. And so when we think about, you know, the reality is those are still very well-occupied centers. On the other hand, that’s the place also where the speed at which the children get backfilled does have an impact on the ultimate net enrollment growth.
Fronan (Analyst at Barclays)
Got it, thank you. And if I may, as a follow-up on the backup care fourth quarter use bank constraint, I think you had said many employees are ahead in their annual use banks and that this should dampen the backup care growth towards year end. How significant is that effect in Q4? And should we view that as just primarily timing, as I think inherently implied, and that benefit limit issue rather than any moderation in underlying engagement or demand?
Steven Kramer (Chief Executive Officer)
I mean, it is primarily a timing issue, given that many of the users of our backup care services—one of the strengths of the program are repeat users. And so they’re most familiar with the program; they are more inclined to be reserving ahead and using their days as the year is unfolding. Newer users to the program, as you might imagine, may be more spread out. So we see that as a timing matter overall, with the use growth at the pace that it is.
The fact that we had such high growth in the second quarter and the third quarter is where we see that the difference versus Q4 is not indicative of anything, given the growth in new users that we’ve seen throughout.
OPERATOR
And our next question will come from George Tong with Goldman Sachs.
Alex Lacker (Analyst at Goldman Sachs)
Hi, this is Alex Lacker, on for George Tong. You mentioned that the regulatory notice had a larger than anticipated impact on new family starts in the UK. So once the notice is lifted, how should we think about the pace of enrollment recovery and whether there’s going to be any lag between inquiries and actual starts?
Steven Kramer (Chief Executive Officer)
Yeah, so look, I think that’s really tough for us to know for sure. You know, this is an action that the UK regulator took that is without precedent. So therefore it’s not something that we would know in terms of how quickly things will come back. What we do know is that we are working really diligently in the UK to ensure that we regain the confidence of the regulator in terms of our safeguarding efforts. You know, those actions started well ahead of the actual notice and continue to today and will continue, as safeguarding is always our number one priority.
And so our expectation is that given that the market in general is strong and that this is really reflective of a challenge that is unique to Bright Horizons Family, that we should see the pace of enrollment recovery come back following the lift of that notice.
Alex Lacker (Analyst at Goldman Sachs)
Got it. And then in backup care, with penetration still below 5% of eligible employees, could you talk a little bit about how utilization typically develops as the client relationship matures and any trends you’re seeing amongst your longest tenured clients?
Steven Kramer (Chief Executive Officer)
Sure. So, you know, we have had a large number of clients for, you know, a large number of years. And so we have many that would fall into the category that you just described. And, you know, certainly what you have seen over the last, call it, four years is very strong growth even among our, quote-unquote, mature clients in terms of their duration as being clients. And so, you know, we continue to see opportunity, given the low penetration that we have, even within those clients that have been partners for a long time, to continue to grow.
And so we see that as a real positive in terms of both our track record and our forward outlook.
Elizabeth Boland (Chief Financial Officer)
Some of what we see with this is that certainly as a benefit is introduced, it has a little bit lower penetration in that initial year, two or three, as it’s getting more awareness within the company. And then the opportunity is greater. That’s one factor on how we achieve better penetration. But our own tools for reaching employees have also improved over the last couple of years in terms of being able to. A registered family can tell us more about themselves and we can be marketing in real time for events that are relevant to their family situation. And so in that way, as we are with a client for longer, there’s more opportunity for the employees who are working there to become aware of us and also for the client, even in their own circumstances, that might be.
We’ve even seen with clients that are introducing a new care type that it opens it up to a new group of employees. But also it is something of a productivity and retention tool for employees who are perhaps working in an environment where there have been some otherwise challenging business conditions for a client, and they find it highly valuable in that way.
OPERATOR
Our next question will come from Andrew Steinerman with JP Morgan.
Andrew Steinerman (Analyst at JP Morgan)
Yeah, so historically, kind of center closings in a typical year, this kind of further back, was 1% to 2%, and that was always kind of healthy pruning. As you look into ’27, do you feel like the U.S. could get back to, let’s call it, just a typical pruning year of centers after a bigger year this year? Like, do you feel like by the end of this year we might kind of rationalize the higher level of closings and move into a year that’s kind of more typical?
And I’m just talking about really kind of the U.S. here in terms of center closings.
Steven Kramer (Chief Executive Officer)
Yeah. So we do have an elevated level of closures this year, Andrew, and are still, with 9% or so of our centers in that group that’s sub-40% occupied, there’s still a little bit of runway there as those centers come into focus to be able to be at the end or near the end of their lease life and to be exiting. So we still would expect to be in a net center closing position in the U.S. in ’27, given the centers that are still in that group that we have on the radar to likely be exiting, given the enrollment trends we’re seeing now.
Andrew Steinerman (Analyst at JP Morgan)
Okay, thank you.
OPERATOR
Moving next to Jeff Mueller with Baird.
Jeff Mueller (Analyst at Baird)
Yeah, thank you. I have a follow-up on the dampening effect of use bank utilization that you were talking to. I understand the concept, but I don’t understand the maybe surprise factor because I would think you had a pretty good sense going into Q3 of where the utilization stood, and Q3, at least revenue, was in your guidance range. And I think you’re steering the full year to the low end of the prior guidance range. So if you could tell me, like, what’s the surprise factor or why is there more of an impact on Q4.
Steven Kramer (Chief Executive Officer)
Yeah. So thanks, Jeff. What we say is when we think about—and again, surprise factor would suggest that this was a sort of larger decrement than I think it deserves. But what I would say is that we modulate between repeat users and new users. And the reality is that, as we went through the first nine months of the year, we saw a heavier emphasis on repeat users that ultimately were using and coming up against their full bank. And I would say that, again, as we enter Q4, our expectation is that we’re probably going to be slightly lighter on new users, because normally those new users could have sequenced in Q3 and buoyed some of the growth, and instead we saw repeat users using more of their bank. And so, therefore, that’ll have the impact on Q4.
Jeff Mueller (Analyst at Baird)
Okay, thank you, that’s helpful. And then on full service enrollment, you alluded to actions to rebuild full service enrollment. Can you go into detail on what those are and maybe just your view of kind of the current environment? Because you’re talking about kind of a challenging fall for the new intake. And I don’t think you’re the only one in the industry that’s seen greater challenges lately. So just trying to think about what could be in your control versus what’s outside of your control.
Elizabeth Boland (Chief Financial Officer)
Yeah, so it is—I think it is fair to observe that not only in the sector, but just in general with consumers, we’re not operating in a vacuum. And the overall sentiment out there with persistent inflation and general economic unease plays a part for any parent who’s making these decisions and certainly for clients who are budget conscious. So we do operate in that ecosystem. Some of the efforts that we have are very much focused on the funnel experience, if you will. So interested families, those who are hand raisers, ensuring that they have the most speedy and effective experience learning about the centers that are available, having a center tour and being able to meet the team, having great follow-up that enables them to register in the timeline that works for them. Being competitive, of course. So that experience on the marketing front and making sure that we have the right bear hug, if you will, around prospects is important.
Having people get into our centers—you’ve heard us say that before, Jeff—that is where we feel like we really shine in terms of demonstrating what our curriculum looks like and what the teacher experience is and the dedicated professionals that are doing the care every day. But it is also certainly a factor to be competitive on price and to be making sure that we are in the market in all areas. So we’ve been very focused on being sure that we are sensitive to that.
And then the big factor that distinguishes Bright Horizons Family in the market is that we have so many client partners with whom we work both in our backup business but across our full-service portfolio. Two-thirds of the centers in the U.S. are client-based centers. But leveraging those relationships where a client may not be the only sponsor but has employees that work all over the country is also an opportunity for us to be redoubling our efforts in that kind of outreach so that we are capturing those kinds of prospects.
Those are some of the things.
Jeff Mueller (Analyst at Baird)
Thank you.
OPERATOR
We’ll go next to Josh Chan with UBS.
Josh Chan (Analyst at UBS)
Hi, good afternoon, Steven, Elizabeth. Just back on the U.S. enrollment, so are you attributing the softness largely to market effects? And safeguarding—the headlines may not have as big of an effect on the U.S. as it is in the UK. Is that fair?
Steven Kramer (Chief Executive Officer)
Yeah, look, Josh, I think that is a fair assertion. I think it is fair to say that the circumstances in the UK as it relates to the regulator and the challenge that we have with the notice and safeguarding is certainly more acute. And when we think about the situation here in the U.S., I would say that certainly we are, as Elizabeth just went through, subject to the broader market environment. Granted, we do have that significant advantage of being able to work with our client partners, and I think that will continue, as it has, to differentiate us and allow us to continue to outperform the general market.
Josh Chan (Analyst at UBS)
That makes a lot of sense. Thank you, Stephen. And then on the backup care, with the less new users—certainly it’s very encouraging to see the existing users use the service—but I guess for the reduced new users, is that a concern in terms of growth into the future years? How are you interpreting that reduced level of new users?
Elizabeth Boland (Chief Financial Officer)
Yeah, so I’m not—I don’t know that we’re trying to imply there’s fewer new users, Josh. We have a solid level of new users joining the backup care offer. My point was just that the new users come in over time. And so I’m just trying to track through if we said that that’s not what was intended. We have good new user growth, and across all of our care types that is also true.
Steven Kramer (Chief Executive Officer)
Yeah. And I think, just to clarify, Josh, it really was about changing from our expectations in terms of the mix between new users and returning users as opposed to feeling like there was a decrement anyway. So it really was a change in how we expected the year to unfold. In the end, really proud of what we were able to accomplish and what we will accomplish for the full year, and again continuing to focus on that long-term algorithm that we stated earlier in the year.
Josh Chan (Analyst at UBS)
Okay, great. Thank you for the color and the time.
OPERATOR
And as a final reminder, that is Star One if you would like to ask a question. We’ll go next to Toni Kaplan with Morgan Stanley.
Toni Kaplan (Analyst at Morgan Stanley)
Thanks so much. I also wanted to ask about the UK issue. It’s obviously been asked a few times already. Maybe just talk about is there anything that you’re changing in terms of your policies to maybe strengthen oversight across, you know, maybe the whole business? I know reputation is such an important factor in childcare and I know you take it very, very seriously. And so I was wondering if there is anything that you can do sort of broadly across the centers to just strengthen oversight and things like that so that it doesn’t continue to other geographies, etc.
Steven Kramer (Chief Executive Officer)
So, appreciate the question and certainly appreciate the nod that you provided to the quality that we are really well known for. What I would say is that in circumstances like this, one of the things that we’re very focused on is first learning and then taking swift and appropriate action. And so in light of the incidents that we’ve had, we did learn and we did really think about the actions that we wanted to take on top of what has been a 40-year history of strong safeguarding measures.
And so I’ll give you a couple of examples, Toni, of things that we are and continue to implement against as it relates to things that are additional. So, as an example, we’ve already started to roll out the implementation of cameras in Bright Horizons Family centers here in the U.S. and in the UK, and so that is ongoing and we believe will be an added safeguarding measure to the oversight that obviously is most important, which is leadership in classrooms and making sure that there are appropriate checks and balances between teachers in classrooms.
In addition to that, we are partnering with a leading firm that has great expertise in safeguarding, and so really taking an outside-in perspective and really looking to make sure that if there is anything that we can learn through that level of expertise that we do so. And then the third piece is that we’re taking our technology really seriously, in addition to cameras technology in the classrooms, and making sure that we are doing everything to safeguard the use of that technology within the classrooms.
So what I would say overall is yes, we are proud of our safeguarding over 40 years and yes, we are adding additional safeguards into it. And that is something that we are taking very seriously.
Toni Kaplan (Analyst at Morgan Stanley)
Yep, thank you. And then on technology, I was wondering if AI and LLM search is changing how parents are finding your centers and if you’re making any changes to your marketing strategy at all as a result of any trends that you’re seeing there. For example, I know if someone types in “find a center near me” or something like that, sometimes it doesn’t necessarily take into account the quality or brand name and things like that—maybe it just finds something more local—and wondering how you’re dealing with, or maybe don’t even have to deal with, how AI and LLM search is changing in the industry.
Steven Kramer (Chief Executive Officer)
Absolutely. So we are absolutely taking steps to make our organization and our centers more discoverable throughout LLMs and recognize that people are starting their research in many cases in that way. So absolutely gearing more to that. We’re doing that and responding to that by doing more videos and other things that are very responsive to LLMs and allowing for the LLMs to pick up and discover better. I would say in addition to that, we also recognize that we’re going into a stage where people are utilizing agents to actually start to do research and ultimately to look for things like tours of centers. And so we’ve been focusing a lot on availability of tours. Knowing that when it’s no longer a human and rather an agent that is seeking, availability actually becomes a really important criteria.
So that’s to give you a little bit of color to the fact that our marketing organization is being really responsive to these changing habits of the consumers that we’re looking to attract and ultimately focusing on that discoverability and differentiation of what we have on offer.
Toni Kaplan (Analyst at Morgan Stanley)
Thanks so much.
Steven Kramer (Chief Executive Officer)
Thanks, Toni.
OPERATOR
And Jeff Silber with BMO Capital Markets has our next question.
Ryan (Analyst at BMO Capital Markets)
Hey, thank you so much. This is Ryan on for Jeff. I was just wondering how you’re thinking about the tuition pricing for full service next year.
Steven Kramer (Chief Executive Officer)
Yeah, it’s early for guiding for next year. So, you know, we are certainly in the process of completing our annual budget process and, as I mentioned before, being very mindful of staying competitive. We make these decisions, you know, center by center, frankly, locally, but also on average would estimate that we’d be at the lower end of our historical range of 3 to 4% on average, looking at that, staying competitive and ensuring that we are in the best position for enrollment capture.
And so that’s what we’re thinking at this point.
Ryan (Analyst at BMO Capital Markets)
I appreciate it. And then, Elizabeth, you had given the backup margins that are embedded in guidance. Just was wondering if you’re able to provide the full service and the ED advisory margins as well for 2026 and then any way we should be thinking about the margin ramp for full service next year as we kind of anniversary some of the outsized closures this year and then maybe the Australia impact is a little bit more de minimis. Thank you.
Elizabeth Boland (Chief Financial Officer)
Yep. Yeah. So for 2026 in full service, we would be expecting for the full year to be broadly flat with 2025, up roughly 70 basis points or so ex Australia. So overall, that’s the picture for the year. That translates to more of a down 75 bps in Q4 and flat excluding Australia just in the quarter itself, given the enrollment decrement there. So that’s the full service business. For ED advising, we would expect Q4 to be similar to last year. So broadly speaking, that’s the guide for margin there.
In 2027, again, it’s early. Given the view that we are coming out of this year on a headwind with enrollment, it’s something that we will need to look to guide I think later at the next quarter in terms of actual margin performance next year. But we have been pleased with, even with the enrollment decrement we saw this quarter again, looking at it ex Australia. Even with that, ex the 50 basis point downdraft, we were able to leverage margins about 40 basis points.
So, you know, there is good awareness there on how we do manage for the enrollment we have. And then we will continue to gain some benefit from the closures of underperformers. And. And that’s what some of the piece parts that are going into this that will inform next year when we give more extensive guidance in bedroom.
OPERATOR
Moving on to Stephanie Moore with Jefferies. Stephanie, your line is open.
Stephanie Moore (Analyst at Jefferies)
My apologies. Hi, guys. Thank you for the time. I wanted to just touch a little bit about what you’re seeing maybe as we get into, or as we’re in, the back-to-school season. You know, I do think there’s been maybe some unfortunately more negative publicity or headlines in the last, you know, 9–12 months than we’ve seen in the past. And maybe it’s just we seem to be more prone to seeing a lot of these headlines, whether the cadence is actually maybe not higher or not.
But unfortunately it’s kind of the world we’re in in some respects. But I just was curious if you’re seeing some of the negative publicity having an impact on enrollment trends or if there’s any difference in what you’re seeing from enrollment trends or existing family retention. At the same time, if there’s anything you’re doing behind the scenes to help from a marketing standpoint as well. Thank you.
Steven Kramer (Chief Executive Officer)
Sure. So I assume you’re talking about headlines related to employers’ actions around reducing workforce, is that correct?
Stephanie Moore (Analyst at Jefferies)
I would say those headlines. I also think, you know, I do think there just seems to be more and more headlines just in childcare in general, you know, accidents, unfortunately, with, you know, the teachers. And it just tends to be, you know, maybe a bit more from a negative publicity standpoint. So. Yes, both sides of that. Exactly.
Steven Kramer (Chief Executive Officer)
Sure. So I think, you know, from a workforce perspective, again, I think that, you know, as we think about the centers here in the U.S. that are in partnership with employers, we still continue to see good enrollment in those centers and so feel good about, you know, how those centers are sized and how important we are as a resource and as a support for working families within those employers. Certainly the layoffs, when they become more acute than I think they are now, that can be challenging.
On the other hand, it does not seem that it is sort of a direct cause and effect. And what I would point to is the strength of the retention of our families. And so ultimately that for us is a really good bellwether as it relates to the impact that that may be out there. But the reality is we’re seeing really strong retention of our families. Look, in terms of the childcare market more broadly, I think that what we’re talking about is a really important support for working families. And so I think the reality is that people recognize, despite the headlines that may exist, that this still represents a very safe and secure form of care. And when you compare it, for example, against one individual being in your home with your child, obviously group care really does stand out as a very safe and appropriate set of care arrangements, along with the fact that parents are often looking for socialization, curriculum, and some of the things that we really stand out on.
So again, I think that from our perspective, we’re really focused around making sure that we continue to deliver and deliver high quality and continue to take additional measures on safeguarding to give families the confidence that we are the right provider and, more generally, childcare centers are the right form of care.
Stephanie Moore (Analyst at Jefferies)
Thank you, I appreciate it. And maybe I missed this earlier, but did you call out the potential for further center rationalization across the broader portfolio? I guess particularly in the UK and US, and my apologies if I missed it. Thank you.
Steven Kramer (Chief Executive Officer)
We didn’t speak to some broader portfolio rationalization. It continues to be top of mind for us to right-size our portfolio and we have reduced the number of centers that are in the most challenged enrollment cohort, that sub-40% enrolled cohort. So we have been closing centers. We have an elevated level of closures this year, have closed 42 through September, and still have another, call it somewhere around 20 probably, to close through the rest of this year.
We have so that we will continue to make progress on that group of underperformers. But it is part and parcel of our overall ensuring that we’re in the right footprint to serve both working families where they live and work, but also employers’ needs as well, so that work is ongoing. And I think that the storyline in Australia is sort of a separate question, but in the rest of our portfolio we’ll continue to look to have the portfolio right-sized.
Well, thank you all very much. Appreciate your time and support this evening and wishing you all a great Halloween.
OPERATOR
Thank you, ladies and gentlemen. Thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.
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