Business context and reporting period
Bright Horizons Family Solutions Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2021. It provides center-based early education and child care, back-up care, and workforce education services, primarily through multi-year employer contracts. The company operated 1,011 centers; 949 (94%) were open at quarter-end.
Financial performance
Amounts below are in millions, except per-share data. Comparisons are with the corresponding 2020 period.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $460.3 | $337.9 | $1,292.7 | $1,138.0 |
| Gross profit | $120.3 | $55.2 | $307.6 | $229.3 |
| Gross margin | 26.1% | 16.3% | 23.8% | 20.1% |
| Operating income (loss) | $46.0 | $(5.9) | $93.7 | $45.5 |
| Net income (loss) | $26.8 | $(6.7) | $52.8 | $24.4 |
| Diluted EPS | $0.44 | $(0.11) | $0.86 | $0.41 |
| Adjusted EBITDA (non-GAAP) | $79.1 | $30.1 | $193.3 | $171.6 |
Q3 revenue rose 36%, led by 52% growth in full-service center-based child care as enrollment improved and centers reopened. Back-up care revenue increased 7% in Q3, but declined 15% year to date versus a pandemic-driven comparison period in 2020. Educational advisory and other services revenue increased 10% in Q3 and 17% year to date. Year-to-date operating income more than doubled, while adjusted EBITDA increased 13%.
Cash from operating activities was $185.2 million for the first nine months, versus $169.9 million in 2020. Investing activities used $62.7 million, including $47.4 million of fixed-asset purchases and $18.9 million for acquisitions. Financing activities used $88.1 million, including $102.2 million of share repurchases.
Financial position and liquidity
- At September 30, cash and cash equivalents were $412.4 million ($420.8 million including restricted cash); working capital was $85.3 million.
- Debt, net of financing costs and discount, was $1.024 billion. The term loan matures November 7, 2023, with approximately $1.013 billion of principal due that year. The company reported no revolver borrowings and $400 million available under its revolving facility.
- The company amended its credit facilities in May 2021, extending the revolver maturity to May 2026, subject to a springing maturity condition, and reducing applicable revolver rates. It reported compliance with its financial covenant at quarter-end.
- Operating lease liabilities totaled $791.7 million. Additional leases not yet commenced carry $26.9 million of fixed payment obligations.
- The company repurchased 0.8 million shares for $104.3 million year to date; $90.5 million remained under its authorization at September 30.
Changes, outlook, and risks
- Management said enrollment and center reopening would continue to ramp through 2021 and into 2022, but centers remained below pre-pandemic enrollment. It expected COVID-19 and variants to adversely affect results through the remainder of 2021 and into 2022. The filing provides no specific full-year earnings or revenue guidance.
- Government support reduced cost of services by $32.2 million in the first nine months of 2021, compared with $61.5 million in 2020. Management cautioned that future support is not assured.
- Labor competition and higher labor rates increased personnel costs at child care centers; management warned these pressures could continue. Reopening pace, enrollment recovery, client return-to-office decisions, and center staffing remain uncertain.
- The filing added vaccine mandate and testing requirements as potential operational risks, including increased costs, employee turnover, and recruiting challenges.
- Management stated existing cash, operating cash flow, and available revolver capacity should fund obligations for at least the next 12 months. It cautioned that prolonged disruptions could require additional financing, which might not be available on reasonable terms.
- Q3 and nine-month 2020 results included impairment and center-closure costs that did not recur in 2021; government aid was also substantially higher in 2020. These items affect comparability. Adjusted EBITDA and other adjusted measures are non-GAAP and should be considered alongside GAAP results.
- Ordinary-course legal matters and UK health and safety matters were accrued, but management did not expect them to materially affect the company’s financial condition or results.
Important facts for investors to verify
- Whether center enrollment, reopening, and staffing recover as expected, and whether any temporarily closed centers remain closed permanently.
- How labor costs, vaccine requirements, and reduced or unavailable government support affect margins and cash generation.
- Whether back-up care revenue and profitability recover as the service mix shifts away from pandemic-era self-sourced reimbursed care.
- The company’s ability to address the large 2023 term-loan maturity while maintaining covenant compliance and adequate liquidity.
- How much reported improvement reflects operating recovery versus government assistance and the absence of 2020 impairment and closure charges.