Bright Horizons Family Solutions® Reports Second Quarter of 2014 Financial Results

BOSTON, Aug. 7, 2014 /PRNewswire/ -- 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 life, today announced financial results for the second quarter of 2014.

Second Quarter 2014 Highlights (compared to second quarter 2013):

  • Revenue increased 12% to $348 million
  • Adjusted EBITDA* increased 14% to $64 million
  • Adjusted income from operations* increased 17% to $43 million
  • Adjusted net income* increased 19% to $28 million
  • Diluted adjusted earnings per pro forma common share* increased 17% to $0.41

"We are pleased with our results this past quarter and through the first half of the year," said David Lissy, Chief Executive Officer.  "Growth was strong across our full suite of solutions, including full service centers, back-up care and educational advisory services.  We also continued to invest in people and technologies to support this growth and our high quality of service while at the same time monitoring overhead spending in order to leverage our infrastructure across the Company."

"This past June we released the Bright Horizons Modern Family Index," continued Mr. Lissy, "and the findings showed that working mothers and fathers alike continue to struggle to balance work and family responsibilities and confirmed that employers that offer them supports, such as child care and elder care, are more likely to engender loyalty, integrity and commitment from their workforce.  These findings were an important reminder that while employers who invest in services like ours are ahead of the game, there is still much work to be done to help support working families, and we are proud to be a leader and advocate in providing this critical support."

Second Quarter 2014 Results

Revenue increased $37.3 million in the second quarter of 2014 on contributions from new and ramping full service child care centers, average price increases of 3-4%, and expanded sales of back-up dependent care and educational advisory services.

Adjusted EBITDA increased $7.8 million and adjusted income from operations increased $6.2 million in the second quarter of 2014 primarily as a result of the $7.7 million increase in gross profit, partially offset by increases in selling, general and administrative expenses ("SG&A").  The adjusted EBITDA increase reflects enrollment gains in mature and ramping centers, contributions from new child care centers, back-up dependent care and educational advisory clients that have been added since the second quarter of 2013, and strong cost management.  These gains are tempered by the integration of the Company's acquisitions of Kidsunlimited in the UK in April 2013 and Children's Choice in the US in July 2013, and the costs incurred during the initial ramp up phase for certain new lease/consortium centers opened over the past 12 to 18 months.

Income from operations was $42.5 million for the second quarter of 2014 compared to $35.4 million in the same 2013 period, and net income was $21.7 million for the second quarter of 2014 compared to net income of $24.5 million in the same 2013 period.  In the second quarter of 2013, the provision for income taxes of $2.0 million represented an effective tax rate of 7.4% due to the realization of a previously unrecognized tax benefit of approximately $4.1 million upon completion of a UK tax enquiry and the projection of the expected applicable tax rate for the full year 2013, including the impact on income before income taxes of the expenses related to the initial public offering (the "IPO") and debt refinancing that were completed in the first quarter of 2013.  Adjusted net income increased by $4.4 million, or 19%, to $27.5 million on the expanded adjusted income from operations.  Diluted adjusted earnings per pro forma common share was $0.41, an increase of 17% compared to the second quarter in 2013.

As of June 30, 2014, the Company operated 882 early care and education centers with the capacity to serve 99,600 children and families, a 7% increase in capacity since June 30, 2013.

*Adjusted EBITDA, adjusted income from operations and adjusted net income are non-GAAP measures.  Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, straight line rent expense, stock compensation expense, expenses related to the IPO and refinancing that were completed in January 2013, expenses related to secondary offerings, expenses associated with completed acquisitions, and the management agreement fee paid to Bain Capital Partners LLC (the "Sponsor").  Adjusted income from operations represents income from operations before expenses related to the completion of the IPO and secondary offerings, and expenses associated with completed acquisitions. Adjusted net income represents net income determined in accordance with GAAP, adjusted for stock compensation expense, amortization expense, the Sponsor management agreement fee, IPO and refinancing expenses, secondary offering expenses, expenses associated with completed acquisitions and the income tax provision (benefit) thereon. These non-GAAP measures are more fully described and are reconciled from the respective measures determined under GAAP in the table referred to below. Diluted adjusted earnings per pro forma common share is a non-GAAP measure, calculated using adjusted net income, and gives effect to the conversion of Class L common stock as if the conversion were completed at the beginning of the respective fiscal period. Please refer to "Non-GAAP Measures," "Bright Horizons Family Solutions Inc. Non-GAAP Reconciliations," and "Bright Horizons Family Solutions Inc. Diluted Adjusted Earnings per Pro Forma Common Share" for further detail.

Balance Sheet and Cash Flow

During the six months ended June 30, 2014, the Company generated approximately $104.4 million of cash flow from operations compared to $98.4 million for the same period in 2013 and invested $36.2 million in fixed assets and acquisitions compared to $103.9 million in the same 2013 period.  Net cash provided by financing activities totaled $14.2 million in the six months ended June 30, 2014 compared to $35.3 million for the same 2013 period.  The Company raised $234.9 million of net proceeds from the IPO completed on January 30, 2013, and repaid all of its outstanding indebtedness with the proceeds from the IPO and proceeds from the issuance of $790.0 million in new secured term loans.  During the six months ended June 30, 2014, the Company's cash and cash equivalents grew $82.7 million to $112.3 million.

2014 Outlook

As described below, the Company is updating certain targets regarding its 2014 expectations.

  • Overall revenue growth in 2014 in the range of 11-12%
  • Adjusted EBITDA growth in 2014 in the range of 15-17%
  • Adjusted net income ranging from $97 million to $99 million in 2014
  • Diluted adjusted earnings per pro forma common share ranging from $1.43 to $1.46

In addition, for the full year in 2014, the Company estimates that pro forma diluted weighted average shares will approximate 68 million shares. 

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 David Lissy.  Replays of the entire call will be available through August 14, 2014 at 1-877-870-5176 or, for international callers, at 1-858-384-5517, conference ID # 13586965.  A webcast of the conference call will also be available through the Investor Relations section of the Company's web site, www.brighthorizons.com.  A copy of this press release is available on the web site.

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." Bright Horizons Family Solutions' 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, strategies and the industries in which we and our partners operate. 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, the following: 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; changes in our relationships with employer sponsors; our substantial indebtedness and the terms of such indebtedness; our ability to withstand seasonal fluctuations in the demand for our services; significant competition within our industry; our ability to implement our growth strategies successfully; as well as those risks and uncertainties described in the "Risk Factors" section of our Annual Report on Form 10-K filed March 25, 2014. 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, unless required by law.

Non-GAAP Measures

In addition to the results provided in accordance with U.S. generally accepted accounting principles ("GAAP") throughout this document, the Company has provided non-GAAP measurements - adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per pro forma common share - which present operating results on a basis adjusted for certain items.  The Company uses these non-GAAP measures as key performance measures for the purpose of evaluating performance internally.  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 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 pro forma common share may differ from similar measures reported by other companies.  Adjusted EBITDA, adjusted income from operations, and adjusted net income are reconciled from the respective measures under GAAP in the attached table "Bright Horizons Family Solutions Inc. Non-GAAP Reconciliations."

The number of common shares used in the calculations of diluted adjusted earnings per pro forma common share for the 2013 reported periods give effect to the conversion of all outstanding shares of Class L common stock at the conversion factor of 35.1955 common shares for each Class L share, as if the conversion was completed at January 1, 2013. Diluted adjusted earnings per pro forma common share is calculated using the two-class method and includes the dilutive effect of stock options.  Shares sold in the IPO are included in the diluted adjusted earnings per pro forma common share calculations beginning on the date that such shares were actually issued. Diluted adjusted earnings per pro forma common share is calculated using adjusted net income, as defined above. See the attached table "Bright Horizons Family Solutions Inc. Diluted Adjusted Earnings per Pro Forma Common Share" for further detail.

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 life. The Company provides center-based full service child care, back-up dependent care and educational advisory services to more than 900 clients across the United States, the United Kingdom, Ireland, the Netherlands, Canada and India, including more than 130 FORTUNE 500 companies and more than 80 of Working Mother magazine's 2013 "100 Best Companies for Working Mothers."  Bright Horizons is one of FORTUNE magazine's "100 Best Companies to Work For" and is one of the UK's 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 OPERATIONS

(In thousands, except share data)

(Unaudited)

 


Three Months Ended June 30,


2014

%


2013

%

Revenue

$

348,100


100.0

%


$

310,813


100.0

%

Cost of services

264,986


76.1

%


235,388


75.7

%

Gross profit

83,114


23.9

%


75,425


24.3

%

Selling, general and administrative expenses

33,204


9.5

%


32,426


10.4

%

Amortization of intangible assets

7,375


2.1

%


7,602


2.5

%

Income from operations

42,535


12.3

%


35,397


11.4

%

Interest expense, net

(8,614)


(2.5)

%


(8,924)


(2.9)

%

Income before income taxes

33,921


9.8

%


26,473


8.5

%

Income tax expense

(12,207)


(3.5)

%


(1,966)


(0.6)

%

Net income

21,714


6.3

%


24,507


7.9

%

Net loss attributable to non-controlling interest


%


(72)


%

Net income attributable to Bright Horizons Family
Solutions Inc.

$

21,714


6.3

%


$

24,579


7.9

%











Earnings per common share:










Common stock—basic

$

0.33





$

0.38




Common stock—diluted

$

0.32





$

0.37




Weighted average number of common shares
outstanding:










Common stock—basic

65,772,698





64,732,730




Common stock—diluted

67,456,880





66,635,484




 

 

 


BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

 


Six Months Ended June 30,


2014

%


2013

%

Revenue

$

680,255


100.0

%


$

590,936


100.0

%

Cost of services

519,992


76.4

%


449,721


76.1

%

Gross profit

160,263


23.6

%


141,215


23.9

%

Selling, general and administrative expenses

68,608


10.1

%


76,031


12.9

%

Amortization of intangible assets

15,109


2.2

%


14,350


2.4

%

Income from operations

76,546


11.3

%


50,834


8.6

%

Loss on extinguishment of debt


%


(63,682)


(10.8)

%

Interest expense, net

(17,341)


(2.5)

%


(22,192)


(3.7)

%

Income (loss) before income taxes

59,205


8.8

%


(35,040)


(5.9)

%

Income tax (expense) benefit

(21,443)


(3.2)

%


8,766


1.5

%

Net income (loss)

37,762


5.6

%


(26,274)


(4.4)

%

Net loss attributable to non-controlling interest


%


(110)


%

Net income (loss) attributable to Bright Horizons Family
Solutions Inc.

$

37,762


5.6

%


$

(26,164)


(4.4)

%











Earnings (loss) per common share:










Common stock—basic

$

0.57





$

(0.43)




Common stock—diluted

$

0.56





$

(0.43)




Weighted average number of common shares
outstanding:










Common stock—basic

65,590,275





60,265,132




Common stock—diluted

67,333,130





60,265,132




 

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


June 30,
 2014


December 31,
 2013

ASSETS






Current assets:






Cash and cash equivalents

$

112,283



$

29,585


Accounts receivable—net

58,084



78,691


Other current assets

54,314



56,894


Total current assets

224,681



165,170


Fixed assets—net

400,724



390,894


Goodwill

1,104,406



1,096,283


Other intangibles—net

421,877



435,060


Other assets

14,794



15,263


Total assets

$

2,166,482



$

2,102,670


LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:






Current portion of long-term debt

$

7,900



$

7,900


Accounts payable and accrued expenses

112,415



107,626


Deferred revenue and other current liabilities

129,740



139,562


Total current liabilities

250,055



255,088


Long-term debt

753,879



756,323


Deferred income taxes

139,995



139,888


Other long-term liabilities

70,825



62,234


Total liabilities

1,214,754



1,213,533


Total stockholders' equity

951,728



889,137


Total liabilities and stockholders' equity

$

2,166,482



$

2,102,670


 

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 


Six months ended June 30,


2014


2013

CASH FLOWS FROM OPERATING ACTIVITIES:






Net income (loss)

$

37,762



$

(26,274)


Adjustments to reconcile net income (loss) to net cash provided by operating activities:






Depreciation and amortization

38,950



34,601


Loss on extinguishment of debt



63,682


Interest paid in kind



2,143


Stock-based compensation

4,423



8,305


Deferred income taxes

(159)



431


Other non-cash adjustments, net

3,003



3,131


Changes in assets and liabilities:






Accounts receivable

20,715



7,691


Prepaid expenses and other current assets

3,041



(18,256)


Accounts payable and accrued expenses

4,170



5,213


Other, net

(7,536)



17,759


Net cash provided by operating activities

104,369



98,426


CASH FLOWS FROM INVESTING ACTIVITIES:






Purchases of fixed assets, net

(30,701)



(39,662)


Payments for acquisitions, net of cash acquired

(6,522)



(64,213)


Settlement of purchase price for prior year acquisitions

1,030




Net cash used in investing activities

(36,193)



(103,875)


CASH FLOWS FROM FINANCING ACTIVITIES:






Borrowings of long-term debt, net



769,360


Extinguishment of long-term debt



(972,468)


Proceeds from initial public offering, net



234,944


Principal payments of long-term debt

(3,950)



(3,950)


Purchase of treasury stock

(3,079)




Proceeds from issuance of common stock upon exercise of options

11,027



4,668


Proceeds from issuance of restricted stock

4,709




Tax benefit from stock-based compensation

5,444



2,791


Net cash provided by financing activities

14,151



35,345


Effect of exchange rates on cash and cash equivalents

371



(1,006)


Net increase in cash and cash equivalents

82,698



28,890


Cash and cash equivalents—beginning of period

29,585



34,109


Cash and cash equivalents—end of period

$

112,283



$

62,999


 

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

SEGMENT INFORMATION

(In thousands)

(Unaudited)



Full service

center-based

care


Back-up

dependent

care


Other

educational

advisory

services


Total

Three months ended June 30, 2014












Revenue

$

300,724



$

39,740



$

7,636



$

348,100


Amortization of intangible assets

7,050



181



144



7,375


Income from operations

29,497



12,181



857



42,535


Adjusted income from operations (1)

29,497



12,181



857



42,535














Three months ended June 30, 2013












Revenue

$

269,910



$

35,717



$

5,186



$

310,813


Amortization of intangible assets

7,346



181



75



7,602


Income from operations

24,062



10,927



408



35,397


Adjusted income from operations (1)

24,974



10,927



408



36,309


(1)     Adjusted income from operations represents income from operations excluding expenses incurred in connection with secondary offerings and transaction costs associated with the acquisition of businesses in 2013.


Full service

center-based

care


Back-up

dependent

care


Other

educational

advisory

services


Total

Six months ended June 30, 2014












Revenue

$

587,748



$

77,196



$

15,311



$

680,255


Amortization of intangibles

14,456



362



291



15,109


Income from operations

51,508



23,873



1,165



76,546


Adjusted income from operations (1)

52,058



23,873



1,165



77,096














Six months ended June 30, 2013












Revenue

$

512,160



$

68,878



$

9,898



$

590,936


Amortization of intangibles

13,837



362



151



14,350


Income (loss) from operations

32,934



18,394



(494)



50,834


Adjusted income from operations (1)

45,181



20,248



284



65,713


(1)     Adjusted income from operations represents income from operations excluding expenses incurred in connection with the completion of the IPO in January 2013, secondary offerings, and transaction costs associated with the acquisition of businesses in 2013.

 

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

NON-GAAP RECONCILIATIONS

(In thousands)

(Unaudited)



Three Months Ended June 30,


Six Months Ended June 30,


2014


2013


2014


2013

Net income (loss)

$

21,714



$

24,507



$

37,762



$

(26,274)


Interest expense, net

8,614



8,924



17,341



22,192


Income tax expense (benefit)

12,207



1,966



21,443



(8,766)


Depreciation

11,960



10,553



23,841



20,251


Amortization of intangible assets (a)

7,375



7,602



15,109



14,350


EBITDA

61,870



53,552



115,496



21,753


Additional Adjustments:












Deferred rent (b)

535



524



1,315



1,363


Stock compensation expense (c)

2,038



1,685



4,423



8,305


Sponsor management fee (d)







7,674


Loss on extinguishment of debt (e)







63,682


Expenses related to secondary offering



647



550



647


Acquisition-related costs (f)



265





1,764


Total adjustments

2,573



3,121



6,288



83,435


Adjusted EBITDA

$

64,443



$

56,673



$

121,784



$

105,188


Income from operations

$

42,535



$

35,397



$

76,546



$

50,834


Performance-based stock compensation expense (c)







4,968


Sponsor termination fee (d)







7,500


Expenses related to secondary offering



647



550



647


Acquisition-related costs (f)



265





1,764


Adjusted income from operations

$

42,535



$

36,309



$

77,096



$

65,713


Net income (loss)

$

21,714



$

24,507



$

37,762



$

(26,274)


Income tax expense (benefit)

12,207



1,966



21,443



(8,766)


Income (loss) before tax

33,921



26,473



59,205



(35,040)


Stock compensation expense (c)

2,038



1,685



4,423



8,305


Sponsor management fee (d)







7,674


Amortization of intangible assets (a)

7,375



7,602



15,109



14,350


Loss on extinguishment of debt (e)







63,682


Expenses related to secondary offering



647



550



647


Acquisition-related costs (f)



265





1,764


Adjusted income before tax

43,334



36,672



79,287



61,382


Income tax expense (g)

(15,817)



(13,568)



(29,119)



(22,712)


Adjusted net income

$

27,517



$

23,104



$

50,168



$

38,670














(a)         Represents amortization of intangible assets, including approximately $5.0 million and $10.0 million for the three and six months ended June 30, 2014 and 2013, associated with intangible assets recorded in connection with our going private transaction in May 2008.
(b)        Represents rent 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, including performance-based stock compensation charge in 2013.
(d)        Represents fees paid to our Sponsor under a management agreement, including the Sponsor termination fee.
(e)         Represents redemption premiums and write off of unamortized debt issue costs and original issue discount associated with indebtedness that was repaid in connection with a refinancing.
(f)         Represents costs associated with the acquisition of businesses.
(g)         Represents income tax expense calculated on adjusted income before tax at the effective rate of approximately 37% in both 2014 and 2013.

 

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

DILUTED ADJUSTED EARNINGS PER PRO FORMA COMMON SHARE

(In thousands except share amounts)

(Unaudited)



Three Months Ended
 June 30,


Six Months Ended
 June 30,


2014


2013


2014


2013

Diluted earnings (loss) per pro forma common share:












Net income (loss)

$

21,714



$

24,507



$

37,762



$

(26,274)


Pro forma weighted average number of common shares—diluted:












Weighted average number of Class L shares over period in
which Class L shares were outstanding (1)







1,327,115


Adjustment to weight Class L shares over respective period







(1,253,387)


Weighted average number of Class L shares over period







73,728


Class L conversion factor







35.1955


Weighted average number of converted Class L common shares







2,594,916


Weighted average number of common shares

65,772,698



64,732,730



65,590,275



60,265,132


Pro forma weighted average number of common shares—basic

65,772,698



64,732,730



65,590,275



62,860,048


Incremental dilutive shares (2)

1,684,182



1,902,754



1,742,855




Pro forma weighted average number of common shares—
diluted

67,456,880



66,635,484



67,333,130



62,860,048


Diluted earnings (loss) per pro forma common share

$

0.32



$

0.37



$

0.56



$

(0.42)














Diluted adjusted earnings per pro forma common share:












Adjusted net income

$

27,517



$

23,104



$

50,168



$

38,670


Pro forma weighted average number of common shares—basic

65,772,698



64,732,730



65,590,275



62,860,048


Incremental dilutive shares (2)

1,684,182



1,902,754



1,742,855



1,832,986


Pro forma weighted average number of common shares—
diluted

67,456,880



66,635,484



67,333,130



64,693,034


Diluted adjusted earnings per pro forma common share

$

0.41



$

0.35



$

0.74



$

0.60


(1)     The weighted average number of Class L shares in the actual Class L earnings per share calculation for the six months ended June 30, 2013 represents the weighted average from the beginning of the period up through the date of conversion of the Class L shares into common shares. As such, the pro forma weighted average number of common shares includes an adjustment to the weighted average number of Class L shares outstanding to reflect the length of time the Class L shares were outstanding prior to conversion relative to the six month period. The converted Class L shares are already included in the weighted average number of common shares outstanding for the period after their conversion.

(2)     Represents the dilutive effect of stock options using the treasury stock method. For purposes of the diluted loss per pro forma common share for the six months ended June 30, 2013, there is no dilutive effect since there was a loss recorded during the period.

SOURCE Bright Horizons Family Solutions Inc.



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