Bright Horizons Family Solutions Inc. — FY2019 Form 10-K
Business context and period. The filing covers the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter filing. Bright Horizons provides employer-sponsored child care and early education, back-up care, and educational advisory services. At year-end it operated 1,084 centers across North America and Europe, serving more than 1,150 employer clients. Full-service child care accounted for 82% of revenue, back-up care 14%, and educational advisory services 4%.
Financial performance
Amounts below are U.S. dollars; financial statement amounts are in millions unless noted.
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $2,062.0 | $1,903.2 | +8% |
| Gross profit / margin | $522.9 / 25.4% | $473.3 / 24.9% | +11%; margin +0.5 percentage point |
| Operating income / margin | $267.8 / 13.0% | $239.1 / 12.6% | +12%; margin +0.4 percentage point |
| Net income / diluted EPS | $180.4 / $3.05 | $158.0 / $2.66 | Net income +14%; EPS +15% |
| Adjusted EBITDA (non-GAAP) | $394.9 | $357.1 | +11% |
| Cash from operations | $330.4 | $294.7 | +$35.6 |
| Cash used in investing / financing | $(189.1) / $(149.1) | $(158.5) / $(134.2) | Greater cash use in both |
Revenue growth reflected enrollment gains, annual tuition increases generally of 3%–4%, new and acquired centers, and growth in other services. Back-up care revenue rose 21% and educational advisory revenue 15%; full-service child care revenue increased 6%. Management cited approximately 4% overall enrollment growth in full-service centers.
Fourth-quarter 2019 revenue was $520.6 million, operating income $67.4 million, net income $47.8 million, and diluted EPS $0.81. In fourth-quarter 2018, the respective figures were $478.2 million, $63.7 million, $46.7 million, and $0.79.
Debt, liquidity, and capital allocation
- Year-end cash and cash equivalents were $27.9 million. The $225 million revolving facility had no borrowings outstanding, and the full line was available.
- Reported total debt, including current maturities and net of financing costs and discount, was $1,038.8 million. Term-loan principal was $1,045.4 million and is largely due at maturity in November 2023. The company was in compliance with financial covenants.
- Operating lease liabilities were $769.0 million, recognized on the balance sheet following adoption of ASC 842; these are separate from reported debt. Working capital was negative $254.4 million.
- Cash interest paid was $43.1 million. A $500 million notional interest-rate swap partly hedges variable-rate exposure; management estimated a 100-basis-point rate increase would add about $5.9 million to annual interest expense after swaps.
- The company repurchased $31.9 million of shares in 2019; $227.1 million remained under its authorization. It paid no common dividends and said it did not currently intend to pay regular dividends.
Outlook, commentary, and risks
- Management expected approximately $350–$375 million of cash from operations in 2020, approximately $100 million of fixed-asset spending, and about 25 net new centers. It expected 2020 interest payments of approximately $40–$43 million and no significant change in amortization expense. These are management expectations, not a full earnings or revenue forecast.
- Management attributed performance gains to enrollment growth, pricing, cost management, acquisitions, and increased use of back-up and educational services. It identified economic conditions, client spending, labor availability and wages, and enrollment as important variables.
- Key risks include hiring and retaining qualified teachers amid tight labor markets and wage pressure; enrollment and employer contract renewal; child safety, litigation, and reputational exposure; competition and the ability to pass costs through in pricing; substantial debt and variable interest rates; cyber and privacy incidents; regulation; foreign-exchange movements and Brexit-related uncertainty; and acquisition integration.
- Demand and results are seasonal: center enrollment typically softens in summer, while back-up care use and costs may rise when schools are closed. Quarterly results can also vary with center openings, acquisitions, staffing, and client launches.
- ASC 842 adoption materially increased reported assets and liabilities; prior-year balance sheets were not restated. The auditor issued an unqualified opinion on the financial statements and internal controls, and identified revenue recognition and lease accounting as critical audit matters.
- Ordinary-course legal matters were disclosed; management did not expect their resolution to materially affect financial position, results, or cash flows, while noting outcomes and insurance coverage cannot be assured.
Important facts for investors to verify
- Whether enrollment gains, pricing, and center utilization continue to offset labor and other operating-cost increases.
- Whether the 2020 cash-flow, capital-spending, and net-center-opening expectations were achieved, and how subsequent results compare.
- Debt repayment capacity and refinancing exposure ahead of the November 2023 term-loan maturity, including the effects of interest rates and credit covenants.
- The scale and economics of lease commitments: $769.0 million of recognized lease liabilities plus $105.0 million of signed leases not yet commenced.
- Acquisition performance and integration, including the $13.9 million estimated contingent consideration recorded for 2019 acquisitions and the associated performance targets.
- How much reported earnings growth depends on equity-award tax benefits: these reduced 2019 income-tax expense by $13.9 million; the company reported an effective tax rate of 19%.