Bright Horizons Family Solutions Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Bright Horizons provides early education and child care, back-up care, and workforce education services, primarily through employer contracts. At quarter-end, it operated 1,006 centers, approximately 920 of which were open, with capacity to serve about 113,000 children and families.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $441.5 million | $293.8 million | $832.3 million | $800.1 million |
| Gross profit / margin | $106.0 million / 24.0% | $65.2 million / 22.2% | $187.3 million / 22.5% | $174.1 million / 21.8% |
| Operating income / margin | $34.0 million / 7.7% | $8.1 million / 2.8% | $47.7 million / 5.7% | $51.4 million / 6.4% |
| Net income | $18.8 million | $0.4 million | $25.9 million | $31.1 million |
| Diluted EPS | $0.31 | $0.01 | $0.42 | $0.52 |
| Adjusted EBITDA (non-GAAP) | $68.0 million | $60.0 million | $114.2 million | $141.5 million |
- Q2 revenue rose 50%, led by a 144% increase in full-service center-based child care revenue as centers reopened and enrollment improved. Back-up care revenue fell 40% against unusually high pandemic-period demand in Q2 2020.
- For the first half, revenue increased 4%; full-service center-based revenue grew 14%, while back-up care declined 25%. Operating income and adjusted EBITDA declined year over year, despite improved full-service center results, principally due to reduced back-up care contributions.
- Q2 2020 included $14.0 million in impairment costs and $4.4 million in center-closure costs; the six-month 2020 period included $19.0 million in impairment costs and $4.4 million in closure costs. Government support reduced cost of services by $17.0 million in the first half of 2021, versus $39.6 million in the prior-year period.
Cash, debt and liquidity
- Operating cash flow was $135.7 million for the first half, versus $51.3 million a year earlier. Management attributed the increase mainly to working-capital timing, improved collections, and advance tuition payments associated with re-enrollment.
- Investing cash outflow was $37.7 million; financing cash outflow was $56.7 million. Cash, cash equivalents and restricted cash totaled $429.1 million at June 30, including $418.6 million of unrestricted cash.
- Term-loan borrowings were $1.029 billion; reported debt, net of financing costs and discount, was $1.026 billion. No borrowings were outstanding on the $400 million revolving facility, which was available for borrowing. The term loan matures in November 2023, with most principal due at maturity.
- Working capital was $89.9 million. The company reported compliance with its financial covenant. It amended its credit facilities in May 2021, extending revolving-facility maturity to May 2026, subject to a springing maturity provision, and reducing applicable revolving borrowing rates.
Outlook, risks and unusual items
- No quantitative full-year earnings or revenue guidance is provided. Management expects COVID-19 to continue adversely affecting results for the remainder of 2021 and expects re-enrollment and phased reopening of temporarily closed centers to continue throughout the year. Enrollment remained below pre-pandemic levels; the company cautioned that reopening timelines and sustained center operations are uncertain.
- Management said cash, operating cash flows and available revolving credit should cover obligations for at least the next twelve months, but prolonged disruption could require additional financing, which may not be available on reasonable terms.
- The company repurchased 515,000 shares for $70.3 million in Q2; $124.5 million remained under its $300 million authorization. It acquired two centers and a camp/back-up care provider during the first half; purchase-price allocations remain preliminary and include $7.3 million of estimated contingent consideration.
- Lease liabilities totaled $800.3 million, and additional signed leases not yet commenced carry $21.8 million of fixed payment obligations. A UK investigation concerning a 2019 nursery incident remains pending; the company has accrued a non-material liability and says an adverse material financial effect is not expected, while noting the outcome is uncertain.
- Other sensitivities include labor availability and costs, COVID-19 developments and restrictions, center enrollment recovery, government support availability, variable-rate debt, and foreign exchange. The filing reports no material changes to risk factors since the 2020 annual report.
Important facts for investors to verify
- Whether center openings and enrollment recovery progress as management expects, and how far enrollment remains below pre-pandemic levels.
- Whether back-up care demand and segment profitability recover after the unusually strong comparison period in 2020.
- How much first-half operating cash flow reflects sustainable operations versus working-capital timing and advance billings.
- Debt repayment and refinancing plans ahead of the November 2023 term-loan maturity, including covenant headroom and the revolving facility’s springing maturity terms.
- Future government assistance, share repurchases, acquisition contingent consideration, and the outcome of the UK investigation.