Bright Horizons Family Solutions Reports First Quarter of 2023 Financial Results

Bright Horizons Family Solutions® Inc. (NYSE: BFAM), a leading provider of high-quality early education and child care, family care solutions, and workforce education services designed to support working families and client employees across life and career stages, today announced financial results for the first quarter of 2023 and reaffirmed financial guidance for 2023.

First Quarter 2023 Highlights (compared to First Quarter 2022):

  • Revenue of $554 million (increase of 20%)
  • Income from operations of $31 million (decrease of 2%)
  • Net income of $8 million and diluted earnings per common share of $0.14 (decreases of 58%)

Non-GAAP measures

  • Adjusted income from operations* of $37 million (increase of 18%)
  • Adjusted EBITDA* of $70 million (increase of 11%)
  • Adjusted net income* of $28 million and diluted adjusted earnings per common share* of $0.49 (increases of 2% and 4%, respectively)

“I am pleased to report a solid start to 2023 as we continue to grow each of our service offerings, expand our portfolio of client partners and support working families and learners so they can thrive and prosper at work and at home,” said Stephen Kramer, Chief Executive Officer.

“I am especially proud of the manner in which we continue to execute across each of our services, and to deliver quality care, education, and support for those we have the privilege to serve,” Kramer continued. “Our continued success is the direct result of the work of our more than 29,000 employees and their dedication to our important mission and unique culture.”

First Quarter 2023 Results

Revenue increased by $93.2 million, or 20%, in the first quarter of 2023 from the first quarter of 2022, attributable to contributions from the 75 centers acquired in Australia in July 2022, enrollment gains and price increases at our existing centers, as well as expanded sales and utilization of back-up care and educational advisory services. These contributions were partially offset by the impacts of lower foreign currency exchange rates for our United Kingdom and Netherlands operations.

Income from operations was $30.6 million for the first quarter of 2023 compared to $31.2 million for the first quarter of 2022. Incremental gross profit contributions from the full service center-based child care segment, resulting from higher enrollment, and the back-up care segment, resulting from higher utilization of back-up care services, were offset by expense of $6.0 million recorded in the first quarter of 2023 related to value-added tax incurred in prior periods. Net income was $8.1 million for the first quarter of 2023 compared to $19.4 million for the first quarter of 2022, a decrease of 58%, due to the decrease in income from operations noted above, as well as higher net interest expense and a higher effective tax rate. Diluted earnings per common share was $0.14 for the first quarter of 2023 compared to $0.33 for the first quarter of 2022.

In the first quarter of 2023, adjusted EBITDA* increased by $7.0 million, or 11%, to $69.8 million, and adjusted income from operations* increased by $5.5 million, or 18%, to $36.7 million from the first quarter of 2022, due primarily to the increase in gross profit in the full service center-based child care segment. Adjusted net income* increased by $0.6 million, or 2%, to $28.3 million, as a result of the increase in adjusted income from operations, partially offset by higher interest expense and a higher effective tax rate. Diluted adjusted earnings per common share* was $0.49 for the first quarter of 2023 compared to $0.47 for the same period in 2022.

As of March 31, 2023, the Company had more than 1,400 client relationships with employers across a diverse array of industries, and operated 1,076 early education and child care centers with the capacity to serve approximately 120,000 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, stock-based compensation expense, and non-recurring costs, such as value-added tax expense related to prior periods and, at times, other non-recurring costs, such as impairment costs and other costs incurred due to the impact of COVID-19, transaction costs, loss on foreign currency forward contracts, and net costs incurred in relation to a cyber incident. Adjusted income from operations represents income from operations before non-recurring costs, such as value-added tax expense related to prior periods and, at times, other non-recurring costs, such as impairment costs and other costs incurred due to the impact of COVID-19, transaction costs, and net costs incurred in relation to a cyber incident. Adjusted net income represents net income determined in accordance with GAAP, adjusted for stock-based compensation expense, amortization, and non-recurring costs, such as value-added tax expense related to prior periods, interest on deferred consideration and, at times, other non-recurring costs, such as impairment costs and other costs incurred due to the impact of COVID-19, transaction costs, loss on foreign currency forward contracts, and net costs incurred in relation to a cyber incident, and the income tax provision (benefit) thereon. Diluted adjusted earnings per common share is 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,” respectively.

Balance Sheet and Liquidity

At March 31, 2023, the Company had $44.6 million of cash and cash equivalents and $350.3 million available for borrowing under our revolving credit facility. In the three months ended March 31, 2023, we generated approximately $67.3 million of cash from operations, compared to $58.6 million for the same period in 2022, and made investments, primarily in fixed assets, totaling $18.2 million, compared to $9.4 million for the same period in the prior year.

2023 Outlook

Based on current trends and expectations, we currently expect fiscal year 2023 revenue to be in the range of $2.3 billion to $2.4 billion, and diluted adjusted earnings per common share to be in the range of $2.80 to $3.00. The Company will provide additional information on its outlook during its earnings conference call.

Conference Call

Bright Horizons Family Solutions will host an investor conference call today at 5:00 pm ET to discuss the results for the first quarter of 2023, as well as the Company’s updated business outlook, strategy and operating expectations. 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 May 16, 2023 at 1-844-512-2921 or, for international callers, at 1-412-317-6671, conference ID #13736586. A link to the audio webcast of the conference call 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 forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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, including statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, operating expectations, our investments, impact of our services, business trends, our future opportunities and business model, enrollment and occupancy levels, long-term growth strategy and value, estimated effective tax rate and tax expense and benefits related to equity transactions, our care solutions, quality and expanded service offerings and portfolio, our ability to respond to changing demands, our future business and financial performance, and our 2023 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, ongoing disruptions to our operations as a result of the COVID-19 pandemic; the availability or lack of government support; changes in the demand for child care, dependent care and other workplace solutions, including variations in enrollment trends and lower than expected demand from employer sponsor clients as well as variations in return to work protocols; the constrained labor market for teachers and staff and ability to hire and retain talent; including the impact of increased compensation and labor costs; 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; changes in general economic, political, business and financial market conditions, including the impact of inflation and interest rate fluctuations; fluctuations in currency exchange rates; the effects of a cyber attack, data breach or other security incident on our information technology system or software or those of our third party vendors; changes in tax rates or policies; and other risks and uncertainties more fully described in the “Risk Factors” section of our Annual Report on Form 10-K filed on February 28, 2023, and other factors disclosed from time to time in our 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.

With respect to our outlook for diluted adjusted earnings per common share, we do not provide the most directly comparable GAAP financial measure or corresponding reconciliation to such GAAP financial measure on a forward-looking basis. We are unable to predict with reasonable certainty and without unreasonable effort certain items such as the timing and amount of net excess income tax benefits, future impairments, transaction costs, and other non-recurring costs, as well as gains or losses from the early retirement of debt and the outcome from legal proceedings. These items are uncertain, depend on various factors outside our management’s control, and could significantly impact, either individually or in the aggregate, our future period earnings per common share as calculated and presented in accordance with GAAP.

For more information regarding adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share, refer to the reconciliation of GAAP financial measures to the non-GAAP financial measures in the attached table “Bright Horizons Family Solutions Inc. Non-GAAP Reconciliations.”

About Bright Horizons Family Solutions Inc.

Bright Horizons® is a leading global provider of high-quality early education and child care, back-up care, and workforce education services. For more than 35 years, we have partnered with employers to support workforces by providing services that help working families and employees thrive personally and professionally. Bright Horizons operates approximately 1,100 early education and child care centers in the United States, the United Kingdom, the Netherlands, Australia and India, and serves more than 1,400 of the world’s leading employers. Bright Horizons’ early education and child care centers, back-up child and elder care, and workforce education programs help employees succeed at each life and career stage. For more information, go to www.brighthorizons.com.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

(Unaudited)

 

 

Three Months Ended March 31,

 

2023

 

%

 

2022

 

%

Revenue

$

553,606

 

 

100.0

%

 

$

460,409

 

 

100.0

%

Cost of services

 

431,992

 

 

78.0

%

 

 

350,350

 

 

76.1

%

Gross profit

 

121,614

 

 

22.0

%

 

 

110,059

 

 

23.9

%

Selling, general and administrative expenses

 

82,771

 

 

15.0

%

 

 

71,746

 

 

15.6

%

Amortization of intangible assets

 

8,198

 

 

1.5

%

 

 

7,149

 

 

1.5

%

Income from operations

 

30,645

 

 

5.5

%

 

 

31,164

 

 

6.8

%

Interest expense — net

 

(12,916

)

 

(2.3

)%

 

 

(7,046

)

 

(1.6

)%

Income before income tax

 

17,729

 

 

3.2

%

 

 

24,118

 

 

5.2

%

Income tax expense

 

(9,603

)

 

(1.7

)%

 

 

(4,712

)

 

(1.0

)%

Net income

$

8,126

 

 

1.5

%

 

$

19,406

 

 

4.2

%

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

Common stock — basic

$

0.14

 

 

 

 

$

0.33

 

 

 

Common stock — diluted

$

0.14

 

 

 

 

$

0.33

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Common stock — basic

 

57,603,866

 

 

 

 

 

59,094,724

 

 

 

Common stock — diluted

 

57,709,909

 

 

 

 

 

59,415,345

 

 

 

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

March 31, 2023

 

December 31, 2022

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

44,629

 

$

36,224

Accounts receivable — net

 

230,769

 

 

217,170

Prepaid expenses and other current assets

 

95,966

 

 

94,316

Total current assets

 

371,364

 

 

347,710

Fixed assets — net

 

575,440

 

 

571,471

Goodwill

 

1,731,758

 

 

1,727,852

Other intangible assets — net

 

237,255

 

 

245,574

Operating lease right-of-use assets

 

796,257

 

 

801,626

Other assets

 

93,277

 

 

104,636

Total assets

$

3,805,351

 

$

3,798,869

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

16,000

 

$

16,000

Borrowings under revolving credit facility

 

44,500

 

 

84,000

Accounts payable and accrued expenses

 

210,524

 

 

230,634

Current portion of operating lease liabilities

 

95,733

 

 

94,092

Deferred revenue

 

263,977

 

 

222,994

Other current liabilities

 

157,647

 

 

138,574

Total current liabilities

 

788,381

 

 

786,294

Long-term debt — net

 

957,876

 

 

961,581

Operating lease liabilities

 

804,821

 

 

810,403

Deferred income taxes

 

46,889

 

 

50,739

Other long-term liabilities

 

103,941

 

 

109,399

Total liabilities

 

2,701,908

 

 

2,718,416

Total stockholders’ equity

 

1,103,443

 

 

1,080,453

Total liabilities and stockholders’ equity

$

3,805,351

 

$

3,798,869

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

2023

 

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net income

$

8,126

 

 

$

19,406

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

27,310

 

 

 

25,576

 

Stock-based compensation expense

 

5,850

 

 

 

6,096

 

Deferred income taxes

 

(597

)

 

 

376

 

Other non-cash adjustments — net

 

2,478

 

 

 

159

 

Changes in assets and liabilities

 

24,146

 

 

 

6,945

 

Net cash provided by operating activities

 

67,313

 

 

 

58,558

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Purchases of fixed assets — net

 

(19,333

)

 

 

(11,595

)

Proceeds from the maturity of debt securities and sale of other investments

 

7,450

 

 

 

5,569

 

Purchases of debt securities and other investments

 

(6,225

)

 

 

(3,180

)

Payments and settlements for acquisitions — net of cash acquired

 

(121

)

 

 

(147

)

Net cash used in investing activities

 

(18,229

)

 

 

(9,353

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Revolving credit facility — net

 

(39,500

)

 

 

 

Principal payments of long-term debt

 

(4,000

)

 

 

(4,000

)

Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase

 

4,287

 

 

 

8,823

 

Taxes paid related to the net share settlement of stock options and restricted stock

 

(1,525

)

 

 

(3,174

)

Purchase of treasury stock

 

 

 

 

(39,913

)

Payments of contingent consideration for acquisitions

 

(225

)

 

 

(13,865

)

Net cash used in financing activities

 

(40,963

)

 

 

(52,129

)

Effect of exchange rates on cash, cash equivalents and restricted cash

 

(114

)

 

 

(605

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

8,007

 

 

 

(3,529

)

Cash, cash equivalents and restricted cash — beginning of period

 

51,894

 

 

 

265,281

 

Cash, cash equivalents and restricted cash — end of period

$

59,901

 

 

$

261,752

 

 

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

SEGMENT INFORMATION

(In thousands)

(Unaudited)

 

Three Months Ended March 31, 2023

Full service

center-based

child care

 

Back-up care

 

Educational

advisory and

other services

 

Total

Revenue

$

430,191

 

 

$

96,330

 

 

$

27,085

 

 

$

553,606

 

Income from operations

 

8,433

 

 

 

17,371

 

 

 

4,841

 

 

 

30,645

 

Adjusted income from operations

 

10,177

 

 

 

21,667

 

 

 

4,841

 

 

 

36,685

 

As a percentage of revenue

 

2

%

 

 

22

%

 

 

18

%

 

 

7

%

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

Revenue

$

353,932

 

 

$

80,844

 

 

$

25,633

 

 

$

460,409

 

Income from operations

 

7,161

 

 

 

20,458

 

 

 

3,545

 

 

 

31,164

 

Adjusted income from operations

 

7,161

 

 

 

20,458

 

 

 

3,545

 

 

 

31,164

 

As a percentage of revenue

 

2

%

 

 

25

%

 

 

14

%

 

 

7

%

(1)

For the three months ended March 31, 2023, adjusted income from operations represents income from operations excluding value-added tax expense of $6.0 million related to prior periods, of which $4.3 million was associated with the back-up care segment and $1.7 million was associated with 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 March 31,

 

2023

 

2022

Net income

$

8,126

 

 

$

19,406

 

Interest expense — net

 

12,916

 

 

 

7,046

 

Income tax expense

 

9,603

 

 

 

4,712

 

Depreciation

 

19,112

 

 

 

18,427

 

Amortization of intangible assets (a)

 

8,198

 

 

 

7,149

 

EBITDA

 

57,955

 

 

 

56,740

 

As a percentage of revenue

 

10

%

 

 

12

%

Additional adjustments:

 

 

 

Stock-based compensation expense (b)

 

5,850

 

 

 

6,096

 

Other costs (c)

 

6,040

 

 

 

 

Total adjustments

 

11,890

 

 

 

6,096

 

Adjusted EBITDA

$

69,845

 

 

$

62,836

 

As a percentage of revenue

 

13

%

 

 

14

%

 

 

 

 

Income from operations

$

30,645

 

 

$

31,164

 

Other costs (c)

 

6,040

 

 

 

 

Adjusted income from operations

$

36,685

 

 

$

31,164

 

As a percentage of revenue

 

7

%

 

 

7

%

 

 

 

 

Net income

$

8,126

 

 

$

19,406

 

Income tax expense

 

9,603

 

 

 

4,712

 

Income before income tax

 

17,729

 

 

 

24,118

 

Amortization of intangible assets (a)

 

8,198

 

 

 

7,149

 

Stock-based compensation expense (b)

 

5,850

 

 

 

6,096

 

Other costs (c)

 

6,040

 

 

 

 

Interest on deferred consideration (d)

 

1,454

 

 

 

 

Adjusted income before income tax

 

39,271

 

 

 

37,363

 

Adjusted income tax expense (e)

 

(10,996

)

 

 

(9,640

)

Adjusted net income

$

28,275

 

 

$

27,723

 

As a percentage of revenue

 

5

%

 

 

6

%

 

 

 

 

Weighted average common shares outstanding — diluted

 

57,709,909

 

 

 

59,415,345

 

Diluted adjusted earnings per common share

$

0.49

 

 

$

0.47

 

(a)

Amortization of intangible assets represents amortization expense, including quarterly amortization expense of approximately $5.0 million associated with intangible assets recorded in connection with our going private transaction in May 2008.

(b)

Stock-based compensation expense represents non-cash stock-based compensation expense in accordance with Accounting Standards Codification Topic 718, Compensation-Stock Compensation.

(c)

Other costs in the three months ended March 31, 2023 consist of value-added tax expense of $6.0 million related to prior periods, of which $4.3 million was associated with the back-up care segment and $1.7 million was associated with the full service center-based child care segment.

(d)

Interest on deferred consideration represents the imputed interest on the deferred consideration issued in connection with the July 1, 2022 acquisition of Only About Children, a child care operator in Australia.

(e)

Adjusted income tax expense represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 28% and 26% for the three months ended March 31, 2023 and 2022, respectively. The prior year tax rate included net excess income tax benefits related to equity transactions, which are not projected in 2023. The jurisdictional mix of the expected adjusted income before income tax for the full year will affect the estimated effective tax rate for the year.

 

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