Market Overview

Bright Horizons Family Solutions Reports Second Quarter of 2018 Financial Results

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Bright
Horizons Family Solutions
® Inc. (NYSE:BFAM), a leading
provider of high-quality child care, early education and other services
designed to help employers and families better address the challenges of
work and family life, today announced financial results for the second
quarter of 2018 and updated certain financial guidance for the full year
2018.

Second Quarter 2018 Highlights (compared to second quarter 2017):

  • Revenue increased 10% to $490 million
  • Income from operations increased 14% to $65 million
  • Net income increased 22% to $40 million and diluted earnings per
    common share increased 26% to $0.68

Non-GAAP measures

  • Adjusted income from operations* increased 13% to $66 million
  • Adjusted EBITDA* increased 10% to $95 million
  • Adjusted net income* increased 14% to $51 million and diluted adjusted
    earnings per common share* increased 18% to $0.87

"We are pleased to report strong financial results for the second
quarter of 2018," said Stephen Kramer, Chief Executive Officer. "As we
continue to provide our employer clients and the working families that
we serve with the high quality, critical supports they need to maximize
their productivity, our results continue to reflect positive momentum
across our entire suite of solutions. These results are powered by our
people and our culture," Kramer continued. "I am proud that we continue
to make important investments in our people, most recently by adding the
Bright Horizons Early Education Degree Achievement Plan - a
market-leading program for early childhood educators to earn their
college degree with no financial barriers."

Second Quarter 2018 Results

Revenue increased $44.2 million, or 10%, in the second quarter of 2018
from the second quarter of 2017 on contributions from new and ramping
full service child care centers, average price increases of 3-4%, and
expanded sales of our back-up dependent care and educational advisory
services.

Income from operations was $64.6 million for the second quarter of 2018,
an increase from $56.8 million in the same 2017 period. Increases in
revenue and gross profit reflect contributions from enrollment gains in
mature and ramping centers, new child care centers, back-up dependent
care and educational advisory clients that have increased utilization
levels or been added since the second quarter of 2017, and strong cost
management. These gains were partially offset by investments in
marketing and technology to support our customer user experience,
service delivery and operating efficiency, and costs incurred during the
pre-opening and ramp-up phase of newer lease/consortium centers. Net
income was $40.4 million for the second quarter of 2018 compared to net
income of $33.0 million in the same 2017 period, an increase of $7.4
million, or 22%, attributable to the expanded income from operations and
a lower effective tax rate primarily due to the decrease in the federal
corporate tax rate promulgated by the U.S. Tax Cuts and Jobs Act in
December 2017. Diluted earnings per common share was $0.68 for the
second quarter of 2018 compared to $0.54 in the same 2017 period.

In the second quarter of 2018, adjusted EBITDA increased $8.9 million,
or 10%, to $95.4 million, and adjusted income from operations increased
$7.5 million, or 13%, to $66.2 million, from the second quarter of 2017
due primarily to the expanded gross profit. Adjusted net income
increased by $6.4 million, or 14%, to $50.9 million on the expanded
income from operations and a lower effective tax rate. Diluted adjusted
earnings per common share was $0.87 compared to $0.74 in the second
quarter of 2017.

As of June 30, 2018, the Company operated 1,065 child care and early
education centers with the capacity to serve 118,000 children and their
families.

*Adjusted EBITDA, adjusted income from operations, adjusted net
income and diluted adjusted earnings per common share are non-GAAP
measures.
Adjusted EBITDA represents earnings before interest,
taxes, depreciation, amortization, straight line rent expense,
stock-based compensation expense, and transaction costs.
Adjusted
income from operations represents income from operations before
transaction costs.
Adjusted net income represents net income
determined in accordance with GAAP, adjusted for stock-based
compensation expense, amortization expense, transaction costs and the
income tax provision (benefit) thereon.
Diluted adjusted earnings
per common share is a non-GAAP measure, calculated using adjusted net
income.
These non-GAAP measures are more fully described and are
reconciled from the respective measures determined under GAAP in
"Presentation of Non-GAAP Measures" and the attached table "Bright
Horizons Family Solutions Inc. Non-GAAP Reconciliations."

Balance Sheet and Cash Flow

For the six months ended June 30, 2018, the Company generated
approximately $188.7 million of cash flows from operations compared to
$167.6 million for the same 2017 period and invested $89.8 million in
fixed assets and acquisitions compared to $59.2 million in the same 2017
period. Net cash used in financing activities totaled $99.8 million in
the six months ended June 30, 2018 compared to $89.9 million for the
same 2017 period, and the Company reported a net reduction in cash and
cash equivalents of $0.3 million to $22.9 million as of June 30, 2018.

2018 Outlook

As described below, the Company is updating certain financial guidance.
For the full year 2018, the Company currently expects:

  • Revenue growth in 2018 in the range of 8-10%
  • Net income in the range of $150 million to $152 million and diluted
    earnings per common share in the range of $2.53 to $2.55
  • Adjusted net income in the range of $184 million to $186 million and
    diluted adjusted earnings per common share in the range of $3.13 to
    $3.16
  • Diluted weighted average shares of approximately 59 million shares

For a reconciliation of the non-GAAP measures to their most directly
comparable GAAP measure, refer to the attached table "Bright Horizons
Family Solutions Inc. Non-GAAP Reconciliations."

Conference Call

Bright Horizons Family Solutions will host an investor conference call
today at 5:00 pm ET. Interested parties are invited to listen to the
conference call by dialing 1-877-407-9039 or, for international callers,
1-201-689-8470, and asking for the Bright Horizons Family Solutions
conference call moderated by Chief Executive Officer Stephen Kramer.
Replays of the entire call will be available through August 23, 2018 at
1-844-512-2921 or, for international callers, 1-412-317-6671, conference
ID #13678191. The webcast of the conference call, including replays, and
a copy of this press release are also available through the Investor
Relations
section of the Company's web site, www.brighthorizons.com.

Forward-Looking Statements

This press release includes statements that express the Company's
opinions, expectations, beliefs, plans, objectives, assumptions or
projections regarding future events or future results and therefore are,
or may be deemed to be, "forward-looking statements." The Company's
actual results may vary significantly from the results anticipated in
these forward-looking statements, which can generally be identified by
the use of forward-looking terminology, including the terms "believes,"
"expects," "may," "will," "should," "seeks," "projects,"
"approximately," "intends," "plans," "estimates" or "anticipates," or,
in each case, their negatives or other variations or comparable
terminology. These forward-looking statements include all matters that
are not historical facts. They include statements regarding the
Company's intentions, beliefs or current expectations concerning, among
other things, our results of operations, financial condition, liquidity,
prospects, growth plan, strategies, our service offerings, our clients,
estimated effective tax rate, estimates and impact of recently enacted
tax legislation and excess tax benefits, our investments in education,
and our 2018 financial guidance. By their nature, forward-looking
statements involve risks and uncertainties because they relate to events
and depend on circumstances that may or may not occur in the future. The
Company believes that these risks and uncertainties include, but are not
limited to, changes in the demand for child care and other dependent
care services, including variation in enrollment trends and lower than
expected demand from employer sponsor clients; the possibility that
acquisitions may disrupt our operations and expose us to additional
risk; our ability to pass on our increased costs; our indebtedness and
the terms of such indebtedness; our ability to withstand seasonal
fluctuations in the demand for our services; our ability to implement
our growth strategies successfully; the impact of recently enacted tax
legislation; and other risks and uncertainties more fully described in
the "Risk Factors" section of our Annual Report on Form 10-K filed
February 28, 2018, and other filings with the Securities and Exchange
Commission. These forward-looking statements speak only as of the time
of this release and we do not undertake to publicly update or revise
them, whether as a result of new information, future events or
otherwise, except as required by law.

Presentation of Non-GAAP Measures

In addition to the results provided in accordance with U.S. generally
accepted accounting principles ("GAAP") throughout this press release,
the Company has provided non-GAAP measurements - adjusted EBITDA,
adjusted income from operations, adjusted net income and diluted
adjusted earnings per common share - which present operating results on
a basis adjusted for certain items. The Company uses these non-GAAP
measures as key performance indicators for the purpose of evaluating
performance internally, and in connection with determining incentive
compensation for Company management, including executive officers.
Adjusted EBITDA is also used in connection with the determination of
certain ratio requirements under our credit agreement. We also believe
these non-GAAP measures provide investors with useful information with
respect to our historical operations. These non-GAAP measures are not
intended to replace, and should not be considered superior to, the
presentation of our financial results in accordance with GAAP. The use
of the terms adjusted EBITDA, adjusted income from operations, adjusted
net income and diluted adjusted earnings per common share may differ
from similar measures reported by other companies and may not be
comparable to other similarly titled measures. Adjusted EBITDA, adjusted
income from operations, adjusted net income and diluted adjusted
earnings per common share are reconciled from the respective measures
under GAAP in the attached table "Bright Horizons Family Solutions Inc.
Non-GAAP Reconciliations."

Guidance for non-GAAP financial measures excludes stock-based
compensation, amortization of intangible assets, expenses related
to the completion of secondary offerings and debt financing
transactions, and expenses associated with completed acquisitions as
well as tax effects associated with these items. These adjustments to
net income and diluted earnings per common share in future periods are
generally expected to be similar to the types of charges and costs
excluded from adjusted net income and diluted adjusted earnings per
common share in prior quarters, although we can provide no assurance as
to the timing or magnitude of any such adjustments. The exclusion of
these charges and costs in future periods will have an impact on the
Company's adjusted net income and diluted adjusted earnings per common
share.

About Bright Horizons Family Solutions Inc.

Bright
Horizons Family Solutions
® is a leading provider of
high-quality child care, early education and other services designed to
help employers and families better address the challenges of work and
family life. The Company provides full service center-based child care,
back-up dependent care and educational advisory services to more than
1,100 clients across the United States, the United Kingdom, the
Netherlands, Canada and India, including more than 150 Fortune 500
companies and more than 80 of Working Mother magazine's 2017 "100
Best Companies for Working Mothers." Bright Horizons has been recognized
17 times as one of Fortune magazine's "100 Best Companies to Work
For" and is one of the U.K. and Netherlands' Best Workplaces as
designated by the Great Place to Work® Institute. Bright
Horizons is headquartered in Watertown, MA. The Company's web site is
located at www.brighthorizons.com.

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME

(In thousands,
except share data)

(Unaudited)

 
    Three Months Ended June 30,
2018     %     2017     %
Revenue $ 489,699     100.0 % $ 445,546     100.0 %
Cost of services 363,662       74.3 % 331,205       74.3 %
Gross profit 126,037 25.7 % 114,341 25.7 %
Selling, general and administrative expenses 53,137 10.9 % 48,869 11.0 %
Amortization of intangible assets 8,276       1.6 % 8,666       2.0 %
Income from operations 64,624 13.2 % 56,806 12.7 %
Interest expense—net (12,161 )     (2.5 )% (10,654 )     (2.4 )%
Income before income tax 52,463 10.7 % 46,152 10.3 %
Income tax expense (12,037 )     (2.4 )% (13,112 )     (2.9 )%
Net income $ 40,426       8.3 % $ 33,040       7.4 %
 
Earnings per common share:
Common stock—basic $ 0.70 $ 0.56
Common stock—diluted $ 0.68 $ 0.54
 
Weighted average number of common shares outstanding:
Common stock—basic 57,613,596 59,053,200
Common stock—diluted 58,761,229 60,379,657
 
 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME

(In thousands,
except share data)

(Unaudited)

 
    Six Months Ended June 30,
2018     %     2017     %
Revenue $ 953,356     100.0 % $ 867,710     100.0 %
Cost of services 713,775       74.9 % 648,435       74.7 %
Gross profit 239,581 25.1 % 219,275 25.3 %
Selling, general and administrative expenses 103,349 10.8 % 95,015 11.0 %
Amortization of intangible assets 16,324       1.7 % 16,050       1.8 %
Income from operations 119,908 12.6 % 108,210 12.5 %
Interest expense—net (23,664 )     (2.5 )% (21,428 )     (2.5 )%
Income before income tax 96,244 10.1 % 86,782 10.0 %
Income tax expense (18,520 )     (1.9 )% (12,368 )     (1.4 )%
Net income $ 77,724       8.2 % $ 74,414       8.6 %
 
Earnings per common share:
Common stock—basic $ 1.33 $ 1.25
Common stock—diluted $ 1.31 $ 1.22
 
Weighted average number of common shares outstanding:
Common stock—basic 57,902,208 59,154,153
Common stock—diluted 59,104,631 60,641,468
 
 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS

(In thousands)
(Unaudited)

 
    June 30, 2018     December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 22,912 $ 23,227
Accounts receivable—net 90,975 117,138
Prepaid expenses and other current assets 46,370   52,096
Total current assets 160,257 192,461
Fixed assets—net 583,249 575,185
Goodwill 1,342,158 1,306,792
Other intangibles—net 337,993 348,540
Other assets 58,097   45,666
Total assets $ 2,481,754   $ 2,468,644
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 10,750 $ 10,750
Borrowings under revolving credit facility 112,300 127,100
Accounts payable and accrued expenses 146,176 132,897
Deferred revenue and other current liabilities 199,998   189,908
Total current liabilities 469,224 460,655
Long-term debt—net 1,041,280 1,046,011
Deferred income taxes 75,588 74,069
Other long-term liabilities 146,640   138,849
Total liabilities 1,732,732   1,719,584
Total stockholders' equity 749,022   749,060
Total liabilities and stockholders' equity $ 2,481,754   $ 2,468,644
 
 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)

 
    Six Months Ended June 30,
2018     2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 77,724 $ 74,414
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 49,933 46,604
Stock-based compensation expense 6,589 5,514
Deferred income taxes (2,347 ) 4,192
Other non-cash adjustments—net 1,754 4,140
Changes in assets and liabilities 55,044   32,733  
Net cash provided by operating activities 188,697   167,597  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets—net (39,155 ) (42,195 )
Payments and settlements for acquisitions—net of cash acquired (50,624 ) (17,026 )
Net cash used in investing activities (89,779 ) (59,221 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving credit facility—net (14,800 ) (9,000 )
Principal payments of long-term debt (5,375 ) (2,688 )
Payments for debt issuance costs (292 ) (1,314 )
Purchase of treasury stock (85,725 ) (73,223 )
Taxes paid related to the net share settlement of stock options and
restricted stock
(7,074 ) (23,309 )
Proceeds from issuance of common stock upon exercise of options 11,661 15,351
Proceeds from issuance of restricted stock 4,457 4,305
Payments of contingent consideration for acquisitions (2,615 )  
Net cash used in financing activities (99,763 ) (89,878 )
Effect of exchange rates on cash and cash equivalents 530   1,206  
Net (decrease) increase in cash and cash equivalents (315 ) 19,704
Cash and cash equivalents—beginning of period 23,227   14,633  
Cash and cash equivalents—end of period $ 22,912   $ 34,337  
 
 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
SEGMENT
INFORMATION

(In thousands)
(Unaudited)

 
   

Full service
center-based
child care

   

Back-up
dependent
care

   

Educational
advisory
services

    Total
Three Months Ended June 30, 2018
Revenue $ 414,121 $ 58,822 $ 16,756 $ 489,699
Income from operations 44,940 16,141 3,543 64,624
Adjusted income from operations (1) 46,527 16,141 3,543 66,211
 
Three Months Ended June 30, 2017
Revenue $ 378,058 $ 53,678 $ 13,810 $ 445,546
Income from operations 39,754 14,247 2,805 56,806
Adjusted income from operations (2) 41,699 14,247 2,805 58,751
(1)   Adjusted income from operations represents income from operations
excluding expenses incurred in connection with the May 2018
amendment to the credit agreement and completed acquisitions, which
have been allocated to the full service center-based child care
segment.
(2) Adjusted income from operations represents income from operations
excluding expenses incurred in connection with the May 2017
amendment to the credit agreement and secondary offering, which have
been allocated to the full service center-based child care segment.
 
               

Full service
center-based
child care

Back-up
dependent
care

Educational
advisory
services

Total
Six Months Ended June 30, 2018
Revenue $ 806,746 $ 113,501 $ 33,109 $ 953,356
Income from operations 81,851 30,266 7,791 119,908
Adjusted income from operations (1) 83,766 30,266 7,791 121,823
 
Six Months Ended June 30, 2017
Revenue $ 736,817 $ 104,086 $ 26,807 $ 867,710
Income from operations 75,179 27,908 5,123 108,210
Adjusted income from operations (2) 77,124 27,908 5,123 110,155
(1)   Adjusted income from operations represents income from operations
excluding expenses incurred in connection with the May 2018
amendment to the credit agreement, the March 2018 secondary
offering, and completed acquisitions, which have been allocated to
the full service center-based child care segment.
(2) Adjusted income from operations represents income from operations
excluding expenses incurred in connection with the May 2017
amendment to the credit agreement and secondary offering, which have
been allocated to the full service center-based child care segment.
 
 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
NON-GAAP
RECONCILIATIONS

(In thousands, except share data)
(Unaudited)

 
    Three Months Ended
June 30,
    Six Months Ended
June 30,
2018     2017 2018     2017
Net income $ 40,426 $ 33,040 $ 77,724 $ 74,414
Interest expense—net 12,161 10,654 23,664 21,428
Income tax expense 12,037 13,112 18,520 12,368
Depreciation 16,974 14,524 33,609 30,554
Amortization of intangible assets (a) 8,276   8,666   16,324   16,050  
EBITDA 89,874 79,996 169,841 154,814
Additional Adjustments:
Deferred rent (b) 218 1,430 226 2,583
Stock-based compensation expense (c) 3,698 3,137 6,589 5,514
Transaction costs (d) 1,587   1,945   1,915   1,945  
Total adjustments 5,503   6,512   8,730   10,042  
Adjusted EBITDA $ 95,377   $ 86,508   $ 178,571   $ 164,856  
 
Income from operations $ 64,624 $ 56,806 $ 119,908 $ 108,210
Transaction costs (d) 1,587   1,945   1,915   1,945  
Adjusted income from operations $ 66,211   $ 58,751   $ 121,823   $ 110,155  
 
Net income $ 40,426 $ 33,040 $ 77,724 $ 74,414

Income tax expense

12,037   13,112   18,520   12,368  

Income before income tax

52,463 46,152 96,244 86,782
Stock-based compensation expense (c) 3,698 3,137 6,589 5,514
Amortization of intangible assets (a) 8,276 8,666 16,324 16,050
Transaction costs (d) 1,587   1,945   1,915   1,945  
Adjusted income before income tax 66,024 59,900 121,072 110,291
Adjusted income tax expense (e) (15,119 ) (15,403 ) (27,587 ) (28,890 )
Adjusted net income $ 50,905   $ 44,497   $ 93,485   $ 81,401  
 
Weighted average number of common shares—diluted 58,761,229   60,379,657   59,104,631   60,641,468  
Diluted adjusted earnings per common share $ 0.87   $ 0.74   $ 1.58   $ 1.34  
 
   

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
NON-GAAP
RECONCILIATIONS

(In thousands, except share data)
(Unaudited)

 
Forward Guidance (h)

Three Months Ended
September 30, 2018

   

Year Ended
December 31, 2018

Low     High Low     High
Net income $ 32,500 $ 33,300 $ 150,000 $ 151,500
Net income allocated to unvested participating shares (200 ) (200 ) (800 ) (800 )
Income tax expense (f) 10,200   10,500   41,200   41,750  
Income before income tax 42,500 43,600 190,400 192,450
Stock-based compensation expense (c) 3,900 4,000 14,250 14,500
Amortization of intangible assets (a) 8,100 8,100 32,250 32,250
Transaction costs (d)     1,900   1,900  
Adjusted income before income tax 54,500 55,700 238,800 241,100
Tax impact on adjusted income before income tax (g) (12,300 ) (12,700 ) (54,400 ) (55,000 )
Adjusted net income attributable to common stockholders $ 42,200   $ 43,000   $ 184,400   $ 186,100  
 
Per common share information:
Diluted earnings per common share $ 0.55 $ 0.56 $ 2.53 $ 2.55
Income tax expense (f) 0.17   0.18   0.70   0.71  
Income before income tax 0.72 0.74 3.23 3.26
Stock-based compensation expense (c) 0.07 0.07 0.24 0.25
Amortization of intangible assets (a) 0.14 0.14 0.55 0.55
Transaction costs (d) 0.03 0.03
Tax impact on adjusted income before income tax (g) (0.21 ) (0.22 ) (0.92 ) (0.93 )
Diluted adjusted earnings per common share $ 0.72   $ 0.73   $ 3.13   $ 3.16  
(a)   Represents amortization of intangible assets, including
approximately $4.7 million in each quarter of 2018 and 2017,
associated with intangible assets recorded in connection with our
going private transaction in May 2008.
(b) Represents rent expense in excess of cash paid for rent, recognized
on a straight line basis over the life of the lease in accordance
with Accounting Standards Codification Topic 840, Leases.
(c) Represents non-cash stock-based compensation expense in accordance
with Accounting Standards Codification Topic 718, Compensation-Stock
Compensation.
(d) Represents transaction costs incurred in connection with the May
2017 and May 2018 amendments to the credit agreement, the May 2017
and March 2018 secondary offerings, and completed acquisitions.
(e) Represents income tax expense calculated on adjusted income before
income tax at an effective tax rate of approximately 23% and 26% for
2018 and 2017, respectively. The tax rate for 2018 represents a tax
rate of approximately 27-28% applied to the expected adjusted income
before tax for the full year, less the estimated effect of
additional excess tax benefits related to equity transactions for
the full year 2018, which the Company estimates will be in the range
of $10.5 million to $12.5 million. However, the timing, volume and
tax benefits associated with such future equity activity will affect
these estimates and the estimated effective tax rate for the year.
(f) Represents estimated income tax expense using an effective tax rate
of approximately 22% for the year ended December 31, 2018, based on
projected consolidated income before income tax and including the
estimated impact of excess tax benefits related to equity
transactions, which the Company estimates in the range of $10.5
million to $12.5 million for the full year in 2018. However, the
timing, volume and tax benefits associated with such future equity
activity will affect these estimates and the estimated effective tax
rate for the year. In addition, the impact of the U.S. Tax Cuts and
Jobs Act may differ from these estimates due to, among other things,
changes in interpretations, analysis and assumptions made by the
Company, additional guidance that may be issued, and tax planning
the Company may undertake.
(g) Represents estimated tax on adjusted income before income tax using
an effective tax rate of approximately 23%.
(h) Forward guidance amounts are estimated based on a number of
assumptions and actual results could differ materially from the
estimates provided herein

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