Bright Horizons Family Solutions Reports Fourth Quarter and Full Year 2023 Financial Results

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

(Unaudited)

Three Months Ended December 31,

2023

%

2022

%

Revenue

$

615,648

100.0

%

$

529,522

100.0

%

Cost of services

499,746

81.2

%

418,262

79.0

%

Gross profit

115,902

18.8

%

111,260

21.0

%

Selling, general and administrative expenses

79,145

12.9

%

62,925

11.9

%

Amortization of intangible assets

8,517

1.3

%

8,785

1.7

%

Income from operations

28,240

4.6

%

39,550

7.4

%

Interest expense — net

(14,252

)

(2.3

)%

(12,791

)

(2.4

)%

Income before income tax

13,988

2.3

%

26,759

5.0

%

Income tax expense

(8,464

)

(1.4

)%

(8,717

)

(1.6

)%

Net income

$

5,524

0.9

%

$

18,042

3.4

%

Earnings per common share:

Common stock — basic

$

0.10

$

0.31

Common stock — diluted

$

0.09

$

0.31

Weighted average common shares outstanding:

Common stock — basic

57,791,646

57,506,602

Common stock — diluted

58,069,824

57,554,377

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

(Unaudited)

Years Ended December 31,

2023

%

2022

%

Revenue

$

2,418,257

100.0

%

$

2,020,487

100.0

%

Cost of services

1,886,533

78.0

%

1,541,834

76.3

%

Gross profit

531,724

22.0

%

478,653

23.7

%

Selling, general and administrative expenses

327,068

13.5

%

289,156

14.3

%

Amortization of intangible assets

33,415

1.4

%

31,912

1.6

%

Income from operations

171,241

7.1

%

157,585

7.8

%

Loss on foreign currency forward contracts

—

—

%

(5,917

)

(0.3

)%

Interest expense — net

(51,609

)

(2.2

)%

(39,486

)

(1.9

)%

Income before income tax

119,632

4.9

%

112,182

5.6

%

Income tax expense

(45,409

)

(1.8

)%

(31,541

)

(1.6

)%

Net income

$

74,223

3.1

%

$

80,641

4.0

%

Earnings per common share:

Common stock — basic

$

1.28

$

1.38

Common stock — diluted

$

1.28

$

1.37

Weighted average common shares outstanding:

Common stock — basic

57,717,102

58,344,817

Common stock — diluted

57,932,574

58,490,652

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

December 31,

2023

2022

ASSETS

Current assets:

Cash and cash equivalents

$

71,568

$

36,224

Accounts receivable — net

281,710

217,170

Prepaid expenses and other current assets

93,621

94,316

Total current assets

446,899

347,710

Fixed assets — net

579,296

571,471

Goodwill

1,786,405

1,727,852

Other intangible assets — net

216,576

245,574

Operating lease right-of-use assets

774,703

801,626

Other assets

92,265

104,636

Total assets

$

3,896,144

$

3,798,869

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt

$

18,500

$

16,000

Borrowings under revolving credit facility

—

84,000

Accounts payable and accrued expenses

259,077

230,634

Current portion of operating lease liabilities

100,387

94,092

Deferred revenue

272,891

222,994

Other current liabilities

148,578

138,574

Total current liabilities

799,433

786,294

Long-term debt — net

944,264

961,581

Operating lease liabilities

796,701

810,403

Deferred income taxes

33,155

50,739

Other long-term liabilities

109,915

109,399

Total liabilities

2,683,468

2,718,416

Total stockholders’ equity

1,212,676

1,080,453

Total liabilities and stockholders’ equity

$

3,896,144

$

3,798,869

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Years Ended December 31,

2023

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

74,223

$

80,641

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

Depreciation and amortization

110,681

106,142

Stock-based compensation expense

28,834

28,111

Impairment losses

35,903

14,061

Loss on foreign currency forward contracts

—

5,917

Deferred income taxes

(11,716

)

(9,644

)

Non-cash interest and other — net

12,496

3,419

Changes in assets and liabilities

5,719

(40,176

)

Net cash provided by operating activities

256,140

188,471

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of fixed assets — net

(90,795

)

(60,009

)

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

19,538

23,392

Purchases of debt securities and other investments

(16,050

)

(25,106

)

Payments and settlements for acquisitions — net of cash acquired

(39,629

)

(210,409

)

Settlement of foreign currency forward contracts

—

(5,917

)

Net cash used in investing activities

(126,936

)

(278,049

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Revolving credit facility — net

(84,000

)

84,000

Principal payments of long-term debt

(16,000

)

(16,000

)

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

11,184

13,235

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

(2,592

)

(6,138

)

Purchase of treasury stock

—

(182,570

)

Payments of contingent consideration for acquisitions

(225

)

(13,865

)

Net cash used in financing activities

(91,633

)

(121,338

)

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

(14

)

(2,471

)

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

37,557

(213,387

)

Cash, cash equivalents and restricted cash — beginning of year

51,894

265,281

Cash, cash equivalents and restricted cash — end of year

$

89,451

$

51,894

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

SEGMENT INFORMATION

(In thousands)

(Unaudited)

Full service

center-based

child care

Back-up care

Educational

advisory and

other services

Total

Three months ended December 31, 2023

Revenue

$

447,146

$

134,558

$

33,944

$

615,648

Income (loss) from operations

(19,097

)

37,428

9,909

28,240

Adjusted income from operations (1)

12,661

40,991

9,909

63,561

As a percentage of revenue

3

%

30

%

29

%

10

%

Three months ended December 31, 2022

Revenue

$

387,954

$

108,390

$

33,178

$

529,522

Income (loss) from operations

(4,112

)

32,806

10,856

39,550

Adjusted income from operations (2)

11,847

32,806

10,856

55,509

As a percentage of revenue

3

%

30

%

33

%

11

%

For the three months ended December 31, 2023, adjusted income from operations represents income from operations excluding impairment losses of $35.9 million for fixed assets and operating lease right-of-use assets, of which $32.0 million related to the full service center-based child care segment and $3.9 million related to the back-up care segment, and a reduction in value-added tax expense of $0.6 million related to prior periods, of which $0.3 million was associated with the full service center-based child care segment and $0.3 million was associated with the back-up care segment.

For the three months ended December 31, 2022 adjusted income from operations for the full service center-based child care segment represents loss from operations excluding impairment losses of $14.1 million for fixed assets and operating lease right-of-use assets, and costs incurred in relation to a cybersecurity incident of $1.9 million.

Full service

center-based

child care

Back-up care

Educational

advisory and

other services

Total

Year ended December 31, 2023

Revenue

$

1,780,615

$

516,408

$

121,234

$

2,418,257

Income from operations

9,396

133,391

28,454

171,241

Adjusted income from operations (1)

42,898

141,250

28,454

212,602

As a percentage of revenue

2

%

27

%

23

%

9

%

Year ended December 31, 2022

Revenue

$

1,493,758

$

409,554

$

117,175

$

2,020,487

Income from operations

12,937

118,788

25,860

157,585

Adjusted income from operations (2)

38,093

118,788

25,860

182,741

As a percentage of revenue

3

%

29

%

22

%

9

%

For the year ended December 31, 2023, adjusted income from operations represents income from operations excluding impairment losses of $35.9 million for fixed assets and operating lease right-of-use assets, of which $32.0 million related to the full service center-based child care segment and $3.9 million related to the back-up care segment, and value-added tax expense of $5.5 million related to prior periods, of which $4.0 million was associated with the back-up care segment and $1.5 million was associated with the full service center-based child care segment.

(2)

For the year ended December 31, 2022, adjusted income from operations for the full service center-based child care segment represents income from operations excluding impairment losses of $14.1 million for fixed assets and operating lease right-of-use assets, transaction costs of $9.2 million related to acquisitions, and costs incurred in relation to a cybersecurity incident of $1.9 million.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

NON-GAAP RECONCILIATIONS

(In thousands, except share data)

(Unaudited)

Three Months Ended December 31,

Years Ended December 31,

2023

2022

2023

2022

Net income

$

5,524

$

18,042

$

74,223

$

80,641

Interest expense — net

14,252

12,791

51,609

39,486

Income tax expense

8,464

8,717

45,409

31,541

Depreciation

19,432

19,399

77,266

74,230

Amortization of intangible assets (a)

8,517

8,785

33,415

31,912

EBITDA

56,189

67,734

281,922

257,810

As a percentage of revenue

9

%

13

%

12

%

13

%

Additional adjustments:

Impairment losses (b)

35,903

14,061

35,903

14,061

Stock-based compensation expense (c)

7,680

6,829

28,834

28,111

Other costs (d)

(582

)

1,898

5,458

11,095

Loss on foreign currency forward contracts (e)

—

—

—

5,917

Total adjustments

43,001

22,788

70,195

59,184

Adjusted EBITDA

$

99,190

$

90,522

$

352,117

$

316,994

As a percentage of revenue

16

%

17

%

15

%

16

%

Income from operations

$

28,240

$

39,550

$

171,241

$

157,585

Impairment losses (b)

35,903

14,061

35,903

14,061

Other costs (d)

(582

)

1,898

5,458

11,095

Adjusted income from operations

$

63,561

$

55,509

$

212,602

$

182,741

As a percentage of revenue

10

%

11

%

9

%

9

%

Net income

$

5,524

$

18,042

$

74,223

$

80,641

Income tax expense

8,464

8,717

45,409

31,541

Income before income tax

13,988

26,759

119,632

112,182

Amortization of intangible assets (a)

8,517

8,785

33,415

31,912

Impairment losses (b)

35,903

14,061

35,903

14,061

Stock-based compensation expense (c)

7,680

6,829

28,834

28,111

Other costs (d)

(582

)

1,898

5,458

11,095

Loss on foreign currency forward contracts (e)

—

—

—

5,917

Interest on deferred consideration (f)

1,478

1,486

5,890

2,957

Adjusted income before income tax

66,984

59,818

229,132

206,235

Adjusted income tax expense (g)

(18,956

)

(15,553

)

(64,869

)

(54,036

)

Adjusted net income

$

48,028

$

44,265

$

164,263

$

152,199

As a percentage of revenue

8

%

8

%

7

%

8

%

Weighted average common shares outstanding — diluted

58,069,824

57,554,377

57,932,574

58,490,652

Diluted adjusted earnings per common share

$

0.83

$

0.77

$

2.84

$

2.60

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

Impairment losses represent impairment costs for long-lived assets as a result of center closures and reduced operating performance at certain centers due to the impact of a challenging labor market and current macroeconomic conditions on our operations. For the three and twelve months ended December 31, 2023, impairment costs totaled $35.9 million for fixed assets and operating lease right-of-use assets, of which $32.0 million related to the full service center-based child care segment and $3.9 million related to the back-up care segment. For the three and twelve months ended December 31, 2022, impairment costs totaled $14.1 million related to the full service center-based child care segment.

(c)

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

Other costs in the three months ended December 31, 2023 consist of a reduction in value-added tax expense of $0.6 million related to prior periods, of which $0.3 million was associated with the full service center-based child care segment and $0.3 million was associated with the back-up care segment. Other costs in the twelve months ended December 31, 2023 consist of value-added tax expense of $5.5 million related to prior periods, of which $4.0 million was associated with the back-up care segment and $1.5 million was associated with the full service center-based child care segment. Other costs in the three and twelve months ended December 31, 2022 consist of costs incurred in relation to a cybersecurity incident of $1.9 million, and other costs in the year ended December 31, 2022 also consist of transaction costs incurred in connection with acquisitions of $9.2 million.

(e)

During the year ended December 31, 2022, the Company entered into foreign currency forward contracts for the purchase of Australian dollars to satisfy the purchase price of an acquisition completed on July 1, 2022. A loss of $5.9 million resulting from fluctuations in foreign currency rates was recognized in the year ended December 31, 2022 in relation to these contracts.

(f)

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.

(g)

Adjusted income tax expense represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 28% for the three and twelve months ended December 31, 2023 and of approximately 26% for the three and twelve months ended December 31, 2022.