Bright Horizons Family Solutions Inc.
08/07/2025 | Press release | Distributed by Public on 08/07/2025 14:45
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the "safe harbor" provisions of the Act. These forward-looking statements 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. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations; financial condition; liquidity; labor, workplace and demographic trends; wage rate increases, personnel costs and labor markets; future center closures and portfolio optimization and impacts; our operations outside the United States; back-up care services and use types; enrollment recovery and occupancy improvement in the United States and outside the United States; our center cohort occupancy levels; cost management and capital spending; investments in employees and wages; contributions and growth in our back-up care segment; the availability or lack of government support programs; tuition rate increases and pricing strategies; leases, terms and expirations; ability to respond to changing or volatile market conditions; our growth and strategic priorities; ability to regain and sustain our business; demand for services; our value proposition, client relations and partnerships; seasonality; macroeconomic trends and changing conditions, including uncertainty and inflationary or recessionary pressures; fluctuating interest rates; changes in laws and regulations, including the OBBBA and its impacts; investments in operations and strategic opportunities; investments in technology, marketing and user experience; our opportunities for expansion; acquisitions, contributions and expected synergies; contingent consideration; amortization expense; our fair value estimates; goodwill from business combinations; impairments; fixed assets; estimates and impact of employee equity transactions; unrecognized tax benefits and the impact of uncertain tax positions; our effective tax rate and estimates; the outcome of tax audits, settlements and tax liabilities; impact of tax benefits/expense; fluctuations, impact and estimates of foreign currency exchange rates and interest rates; our capital allocation; share repurchase program and future activity; the outcome of litigation, legal proceedings/claims and our insurance coverage; debt securities; our interest rates, weighted average interest rate, expense and impact of our interest rate cap agreements; credit risk; the use of derivatives or other market risk sensitive instruments; critical accounting policies and estimates; impact of new accounting pronouncements; our indebtedness; borrowings under our senior secured credit facilities, the need for additional debt or equity financing, and our ability to obtain such financing; contractual and actual maturities; our sources, drivers and uses of cash flows; our ability to fund operations and make capital expenditures and payments with cash and cash equivalents and borrowings; and our ability to meet financial obligations and comply with covenants of our senior secured credit facilities.
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. We believe that these risks and uncertainties include, but are not limited to, those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, as well as other factors disclosed from time to time in our other public filings with the SEC.
Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as required by law.
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Overview
The following is a discussion of the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of Bright Horizons Family Solutions Inc. ("we" or the "Company") for the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024. This discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operationsand the Consolidated Financial Statements and Notesthereto included in our Annual Report on Form 10-K for the year ended December 31, 2024.
We are a leading provider of high-quality education and care, including early education and child care, back-up and family care solutions, and workforce education services that are designed to help families, employers and their employees solve the challenges of the modern workforce and thrive personally and professionally. We provide services primarily under multi-year contracts with employers who offer early education and child care, back-up care, and educational advisory services as part of their employee benefits packages in an effort to support employees across life and career stages and to improve recruitment, employee engagement, productivity, retention and career advancement, and we serve the needs of working families directly through our community facing child care centers.
As of June 30, 2025, we operated 1,020 early education and child care centers with the capacity to serve approximately 115,000 children in the United States, the United Kingdom, the Netherlands, Australia and India.
Our reportable segments are comprised of (1) full service center-based child care, (2) back-up care, and (3) educational advisory services. Full service center-based child care includes traditional center-based early education and child care, preschool, and elementary education. Back-up care consists of center-based back-up child care, in-home care for children and seniors, school-age programs (including camps and tutoring), pet care, self-sourced reimbursed care, and an online marketplace for families and caregivers. Educational advisory services include tuition assistance and student loan repayment program management, workforce education and related educational advising, and college admissions counseling services.
During the three months ended June 30, 2025, we saw strong growth in back-up care with a 19% year-over-year increase in revenue as a result of increased utilization. We also saw solid year-over-year revenue growth of 7% in our full service center-based child care segment, including net enrollment growth of 2%. To track our continued improvement in occupancy rates, we monitor occupancy for a cohort of centers that has been operating since the 2021 fall enrollment cycle, and as of June 30, 2025, this cohort of centers totaled 760 centers. Occupancy represents utilization for each respective center and is calculated as the average full-time enrollment divided by the total operating capacity during the period. For the quarter ended June 30, 2025, 54% of these centers were more than 70% enrolled, 36% were between 40-70% enrolled and 10% were less than 40% enrolled, which reflects improved occupancy when compared to the same period in the prior year and when compared to the first quarter of 2025.
While we continue to see year-over-year growth and progress, we continue to navigate through a dynamic operating environment that is impacted by increased costs, a tight labor market, varying enrollment demands, shifting work demographics, and challenging and uncertain macroeconomic conditions. We monitor and respond to the changing conditions and operating environments, and the evolving needs of clients, families and children, including the optimization of our portfolio of centers through the routine closure of underperforming centers to accommodate evolving changes in demand in the markets we serve. In the event of a center closure, where possible, we shift enrollment and teachers to other centers at nearby locations.
We remain focused on our strategic priorities to deliver high quality education and care services, connect across our service lines, extend our impact on new customers and clients, and preserve our strong culture and we remain committed to serving the needs of families, clients and our employees. We are confident in our value proposition, business model, the strength of our client partnerships, the strength of our balance sheet and liquidity position, and our ability to continue to respond to changing and unpredictable market conditions.
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Results of Operations
The following table sets forth statement of income data as a percentage of revenue for the three months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2025 | % | 2024 | % | ||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Revenue | $ | 731,570 | 100.0 | % | $ | 670,059 | 100.0 | % | |||||||||||||||
| Cost of services | 549,020 | 75.0 | % | 507,647 | 75.8 | % | |||||||||||||||||
| Gross profit | 182,550 | 25.0 | % | 162,412 | 24.2 | % | |||||||||||||||||
| Selling, general and administrative expenses | 94,834 | 13.0 | % | 87,499 | 13.1 | % | |||||||||||||||||
| Amortization of intangible assets | 1,664 | 0.2 | % | 5,854 | 0.8 | % | |||||||||||||||||
| Income from operations | 86,052 | 11.8 | % | 69,059 | 10.3 | % | |||||||||||||||||
| Interest expense - net | (10,555) | (1.5) | % | (12,013) | (1.8) | % | |||||||||||||||||
| Income before income tax | 75,497 | 10.3 | % | 57,046 | 8.5 | % | |||||||||||||||||
| Income tax expense | (20,722) | (2.8) | % | (17,872) | (2.7) | % | |||||||||||||||||
| Net income | $ | 54,775 | 7.5 | % | $ | 39,174 | 5.8 | % | |||||||||||||||
|
Adjusted EBITDA (1)
|
$ | 115,615 | 15.8 | % | $ | 102,630 | 15.3 | % | |||||||||||||||
|
Adjusted income from operations (1)
|
$ | 86,052 | 11.8 | % | $ | 69,059 | 10.3 | % | |||||||||||||||
|
Adjusted net income (1)
|
$ | 61,504 | 8.4 | % | $ | 51,301 | 7.7 | % | |||||||||||||||
(1)Adjusted EBITDA, adjusted income from operations and adjusted net income are financial measures that are not calculated in accordance with generally accepted accounting principles in the United States ("GAAP"), which are commonly referred to as "non-GAAP financial measures." Refer to "Non-GAAP Financial Measures and Reconciliation" below for a reconciliation of these non-GAAP financial measures to their respective measures determined under GAAP and for information regarding our use of non-GAAP financial measures.
The following table sets forth statement of income data as a percentage of revenue for the six months ended June 30, 2025 and 2024:
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2025 | % | 2024 | % | ||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Revenue | $ | 1,397,097 | 100.0 | % | $ | 1,292,768 | 100.0 | % | |||||||||||||||
| Cost of services | 1,058,810 | 75.8 | % | 995,228 | 77.0 | % | |||||||||||||||||
| Gross profit | 338,287 | 24.2 | % | 297,540 | 23.0 | % | |||||||||||||||||
| Selling, general and administrative expenses | 186,695 | 13.4 | % | 175,045 | 13.5 | % | |||||||||||||||||
| Amortization of intangible assets | 3,268 | 0.2 | % | 13,499 | 1.1 | % | |||||||||||||||||
| Income from operations | 148,324 | 10.6 | % | 108,996 | 8.4 | % | |||||||||||||||||
| Interest expense - net | (20,906) | (1.5) | % | (25,694) | (2.0) | % | |||||||||||||||||
| Income before income tax | 127,418 | 9.1 | % | 83,302 | 6.4 | % | |||||||||||||||||
| Income tax expense | (34,594) | (2.5) | % | (27,139) | (2.1) | % | |||||||||||||||||
| Net income | $ | 92,824 | 6.6 | % | $ | 56,163 | 4.3 | % | |||||||||||||||
|
Adjusted EBITDA (1)
|
$ | 207,919 | 14.9 | % | $ | 177,611 | 13.7 | % | |||||||||||||||
|
Adjusted income from operations (1)
|
$ | 148,324 | 10.6 | % | $ | 108,996 | 8.4 | % | |||||||||||||||
|
Adjusted net income (1)
|
$ | 106,223 | 7.6 | % | $ | 80,922 | 6.3 | % | |||||||||||||||
(1)Adjusted EBITDA, adjusted income from operations and adjusted net income are financial measures that are not calculated in accordance with GAAP, which are commonly referred to as "non-GAAP financial measures." Refer to "Non-GAAP Financial Measures and Reconciliation" below for a reconciliation of these non-GAAP financial measures to their respective measures determined under GAAP and for information regarding our use of non-GAAP financial measures.
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Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024
Revenue. Revenue for the three months ended June 30, 2025, increased by $61.5 million, or 9%, to $731.6 million from $670.1 million for the same period in 2024. The following table summarizes the revenue and percentage of total revenue for each of our segments for the three months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change 2025 vs 2024 | |||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Full service center-based child care | $ | 540,267 | 73.9 | % | $ | 507,077 | 75.7 | % | $ | 33,190 | 6.5 | % | |||||||||||||||||||||||
| Tuition | 495,701 | 91.8 | % | 463,409 | 91.4 | % | 32,292 | 7.0 | % | ||||||||||||||||||||||||||
| Management fees and operating subsidies | 44,566 | 8.2 | % | 43,668 | 8.6 | % | 898 | 2.1 | % | ||||||||||||||||||||||||||
| Back-up care | 162,670 | 22.2 | % | 136,490 | 20.3 | % | 26,180 | 19.2 | % | ||||||||||||||||||||||||||
| Educational advisory services | 28,633 | 3.9 | % | 26,492 | 4.0 | % | 2,141 | 8.1 | % | ||||||||||||||||||||||||||
| Total revenue | $ | 731,570 | 100.0 | % | $ | 670,059 | 100.0 | % | $ | 61,511 | 9.2 | % | |||||||||||||||||||||||
Revenue generated by the full service center-based child care segment in the three months ended June 30, 2025 increased by $33.2 million, or 7%, when compared to the same period in 2024. Tuition revenue increased by $32.3 million, or 7%, when compared to the prior year, due to a 2% net increase in enrollment and average tuition rate increases at our child care centers of approximately 4-5%. Fluctuations in foreign currency exchange rates for our United Kingdom, Netherlands and Australia operations increased 2025 tuition revenue by approximately 2%, or $7.9 million. We expect to be impacted by fluctuations in the foreign currency exchange rates throughout the year, although we do not expect the impact on net earnings to be material.
Management fees and operating subsidies from employer sponsors increased by $0.9 million, or 2%, primarily due to higher operating subsidies required to support center operations as enrollment continues to increase.
Revenue generated by back-up care services in the three months ended June 30, 2025 increased by $26.2 million, or 19%, when compared to the same period in 2024. Revenue growth in the back-up care segment was primarily attributable to increased utilization of center-based, in-home and school age programs by new and existing clients.
Revenue generated by educational advisory services in the three months ended June 30, 2025 increased by $2.1 million, or 8%, when compared to the same period in 2024 from increased utilization from new and existing clients.
Cost of Services. Cost of services increased by $41.4 million, or 8%, to $549.0 million for the three months ended June 30, 2025 from $507.6 million for the same period in 2024.
Cost of services in the full service center-based child care segment increased by $29.8 million, or 7%, to $445.7 million in the three months ended June 30, 2025 when compared to the same period in 2024. The increase in cost of services was primarily associated with increased personnel costs related to expanded enrollment, wage rate increases and higher benefit costs. Personnel costs, which represent approximately 70% of the costs for this segment, increased 10% during the quarter compared to the same period in the prior year. In addition to the personnel costs to support the enrollment growth noted above, we continue to invest in higher wages and benefits for our center staff, resulting in an increase of approximately 3-4% to the average hourly wage in 2025 compared to 2024.
Cost of services in the back-up care segment increased by $11.5 million, or 15%, to $88.8 million in the three months ended June 30, 2025, when compared to the prior year. The increase in cost of services correlates to the increase in revenue and is primarily associated with care provider fees to serve the increase in utilization levels of center-based and in-home back-up care over the prior year, and continued investment in technology to support our customer user experience and customer acquisition.
Cost of services in the educational advisory services segment increased by $0.1 million, or 1%, to $14.5 million in the three months ended June 30, 2025 when compared to the prior year, on improved leverage in service delivery.
Gross Profit. Gross profit increased by $20.2 million, or 12%, to $182.6 million for the three months ended June 30, 2025 from $162.4 million for the same period in 2024 primarily due to incremental gross profit contributions from the back-up care segment, resulting from higher utilization of back-up care services, and the full service center-based child care segment, resulting from enrollment growth, and the associated operating leverage. Gross profit margin was 25% of revenue for the three months ended June 30, 2025, an increase of approximately 1% compared to the three months ended June 30, 2024.
Selling, General and Administrative Expenses ("SGA"). SGA increased by $7.3 million, or 8%, to $94.8 million for the three months ended June 30, 2025 from $87.5 million for the same period in 2024, due to higher personnel and technology costs. SGA was 13% of revenue for the three months ended June 30, 2025, consistent with the same period in 2024.
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Amortization of Intangible Assets. Amortization expense on intangible assets was $1.7 million for the three months ended June 30, 2025, a decrease from $5.9 million for the three months ended June 30, 2024, primarily due to decreases from intangible assets becoming fully amortized since the prior year, partially offset by increases from intangible assets acquired in relation to the acquisitions completed in 2024 and 2025.
Income from Operations. Income from operations increased by $17.0 million, or 25%, to $86.1 million for the three months ended June 30, 2025 when compared to the prior year. The following table summarizes income from operations and percentage of revenue for each of our segments for the three months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
|
2025
|
2024
|
Change 2025 vs 2024 | |||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Full service center-based child care | $ | 40,280 | 7.5 | % | $ | 32,644 | 6.4 | % | $ | 7,636 | 23.4 | % | |||||||||||||||||||||||
| Back-up care | 40,923 | 25.2 | % | 31,593 | 23.1 | % | 9,330 | 29.5 | % | ||||||||||||||||||||||||||
| Educational advisory services | 4,849 | 16.9 | % | 4,822 | 18.2 | % | 27 | 0.6 | % | ||||||||||||||||||||||||||
| Income from operations | $ | 86,052 | 11.8 | % | $ | 69,059 | 10.3 | % | $ | 16,993 | 24.6 | % | |||||||||||||||||||||||
The increase in income from operations was primarily due to the following:
•Income from operations for the full service center-based child care segment increased $7.6 million, or 23%, in the three months ended June 30, 2025 when compared to the same period in 2024, primarily due to increases in tuition revenue from enrollment growth and annual tuition rate increases, as well as decreases in amortization expense, partially offset by increased personnel costs.
•Income from operations for the back-up care segment increased $9.3 million, or 30%, in the three months ended June 30, 2025 when compared to the same period in 2024, primarily due to incremental gross profit contributions from expanded utilization of back-up care services, partially offset by investments in technology to improve customer experience.
•Income from operations for the educational advisory services segment in the three months ended June 30, 2025 was consistent with the same period in 2024, due to revenue increases offset by service costs for technology and marketing.
Net Interest Expense. Net interest expense was $10.6 million for the three months ended June 30, 2025, a decrease from $12.0 million for the three months ended June 30, 2024, primarily due to lower interest rates applicable to our debt and lower outstanding debt, partially offset by debt financing costs of $0.6 million related to refinancing our debt facilities in 2025. The weighted average interest rate for the term loans and revolving credit facility was 4.26% for the three months ended June 30, 2025 compared to 4.90% for the three months ended June 30, 2024, inclusive of the effects of the cash flow hedges. Based on our current interest rate projections, we estimate that our overall weighted average interest rate will be in the range of 4.75% and 5.00% for the remainder of 2025 inclusive of the effects of the cash flow hedges.
Income Tax Expense. We recorded income tax expense of $20.7 million during the three months ended June 30, 2025, at an effective income tax rate of 27%, compared to an income tax expense of $17.9 million during the three months ended June 30, 2024, at an effective income tax rate of 31%. The difference between the effective income tax rates as compared to the statutory income tax rates was primarily due to the impact of unbenefited losses in certain foreign subsidiaries and the effects of net excess tax benefit (shortfall tax expense) associated with the exercise or expiration of stock options and vesting of restricted stock. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including changes to income before income tax, jurisdictional mix of income before income tax, unbenefited losses, valuation allowances, jurisdictional income tax rate changes, as well as discrete items such as non-deductible transaction costs, the settlement of foreign, federal and state tax matters and the effects of excess tax benefit (shortfall tax expense) associated with the exercise or expiration of stock options and vesting of restricted stock.
During the three months ended June 30, 2025 and 2024, the net shortfall tax expense from stock-based compensation increased tax expense by $0.1 million and $0.2 million, respectively. For the three months ended June 30, 2025 and 2024, prior to the inclusion of the excess tax benefit (shortfall tax expense), other discrete items and unbenefited losses in certain foreign jurisdictions, the effective tax rate approximated 27%.
Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA increased $13.0 million, or 13%, and adjusted income from operations increased $17.0 million, or 25%, for the three months ended June 30, 2025 over the comparable period in 2024 primarily due to increased contributions from both the back-up care segment and the full service center-based child care segment.
Adjusted Net Income. Adjusted net income increased $10.2 million, or 20%, for the three months ended June 30, 2025 when compared to the same period in 2024, primarily due to the increase in adjusted income from operations and lower interest expense.
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Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024
Revenue. Revenue increased by $104.3 million, or 8%, to $1.4 billion for the six months ended June 30, 2025 from $1.3 billion for the same period in 2024. The following table summarizes the revenue and percentage of total revenue for each of our segments for the six months ended June 30, 2025 and 2024:
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change 2025 vs 2024 | |||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Full service center-based child care | $ | 1,050,814 | 75.2 | % | $ | 990,717 | 76.6 | % | $ | 60,097 | 6.1 | % | |||||||||||||||||||||||
| Tuition | 960,327 | 91.4 | % | 903,959 | 91.2 | % | 56,368 | 6.2 | % | ||||||||||||||||||||||||||
| Management fees and operating subsidies | 90,487 | 8.6 | % | 86,758 | 8.8 | % | 3,729 | 4.3 | % | ||||||||||||||||||||||||||
| Back-up care | 291,282 | 20.9 | % | 251,162 | 19.5 | % | 40,120 | 16.0 | % | ||||||||||||||||||||||||||
| Educational advisory services | 55,001 | 3.9 | % | 50,889 | 3.9 | % | 4,112 | 8.1 | % | ||||||||||||||||||||||||||
| Total revenue | $ | 1,397,097 | 100.0 | % | $ | 1,292,768 | 100.0 | % | $ | 104,329 | 8.1 | % | |||||||||||||||||||||||
Revenue generated by the full service center-based child care segment in the six months ended June 30, 2025 increased by $60.1 million, or 6%, when compared to the same period in 2024. Tuition revenue increased by $56.4 million, or 6%, when compared to the prior year, due to a 2% net increase in enrollment and average tuition rate increases at our child care centers of approximately 4-5%. Fluctuations in foreign currency exchange rates for our United Kingdom, Netherlands and Australia operations increased 2025 tuition revenue by $4.2 million.
Management fees and operating subsidies from employer sponsors increased by $3.7 million, or 4%, primarily due to higher operating subsidies required to support center operations on expanded enrollment.
Revenue generated by back-up care services in the six months ended June 30, 2025 increased by $40.1 million, or 16%, when compared to the same period in 2024. Revenue growth in the back-up care segment was primarily attributable to increased utilization of center-based, in-home and school-age camp back-up care by new and existing clients.
Revenue generated by educational advisory services in the six months ended June 30, 2025 increased by $4.1 million, or 8%, when compared to the same period in the prior year. Revenue growth in this segment was primarily attributable to increased utilization from new and existing clients.
Cost of Services. Cost of services increased $63.6 million, or 6%, to $1.1 billion for the six months ended June 30, 2025 from $1.0 billion for the same period in 2024.
Cost of services in the full service center-based child care segment increased by $48.0 million, or 6%, to $0.9 billion in the six months ended June 30, 2025 when compared to the same period in 2024. The increase in cost of services was primarily associated with increased personnel costs related to expanded enrollment, wage rate increases and higher benefit costs. Personnel costs increased 8% during the six months ended June 30, 2025 compared to the same period in the prior year. In addition to the personnel costs to support the enrollment growth noted above, we continue to invest in higher wages and benefits for our center staff, resulting in an increase of approximately 3-4% to the average hourly wage in 2025 compared to 2024.
Cost of services in the back-up care segment increased $15.3 million, or 10%, to $161.5 million in the six months ended June 30, 2025 when compared to the prior year. The increase in cost of services correlates to the increase in revenue and is primarily associated with care provider fees to serve the increase in utilization levels of center-based and in-home back-up care over the prior year, and continued investment in technology to support our customer user experience and service offerings.
Cost of services in the educational advisory services segment increased by $0.3 million, or 1%, to $29.5 million in the six months ended June 30, 2025 when compared to the prior year, on improved leverage in service delivery.
Gross Profit. Gross profit increased $40.8 million, or 14%, to $338.3 million for the six months ended June 30, 2025 from $297.5 million for the same period in 2024 primarily due to incremental gross profit contributions from the back-up care segment, resulting from higher utilization of back-up care services, and from the full service center-based child care segment, resulting from enrollment growth, and the associated operating leverage. Gross profit margin was 24% of revenue for the six months ended June 30, 2025, an increase of approximately 1% compared to the six months ended June 30, 2024.
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Selling, General and Administrative Expenses. SGA increased $11.7 million, or 7%, to $186.7 million for the six months ended June 30, 2025 from $175.0 million for the same period in 2024, due to higher personnel and technology costs. SGA for the six months ended June 30, 2024 included a $2.3 million charge within the back-up care segment resulting from the early settlement of contingent consideration for a 2021 acquisition. SGA was 13% of revenue for the six months ended June 30, 2025, which is consistent with the same period in 2024.
Amortization of Intangible Assets. Amortization expense on intangible assets of $3.3 million for the six months ended June 30, 2025, decreased from $13.5 million for the six months ended June 30, 2024 primarily due to certain intangible assets becoming fully amortized during the prior year, partially offset by increases from intangible assets acquired in relation to the acquisitions completed in 2024 and 2025.
Income from Operations. Income from operations increased by $39.3 million, or 36%, to $148.3 million for the six months ended June 30, 2025 when compared to the same period in 2024. The following table summarizes income from operations and percentage of revenue for each of our segments for the six months ended June 30, 2025 and 2024:
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change 2025 vs 2024 | |||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Full service center-based child care | $ | 73,534 | 7.0 | % | $ | 54,088 | 5.5 | % | $ | 19,446 | 36.0 | % | |||||||||||||||||||||||
| Back-up care | 67,307 | 23.1 | % | 47,576 | 18.9 | % | 19,731 | 41.5 | % | ||||||||||||||||||||||||||
| Educational advisory services | 7,483 | 13.6 | % | 7,332 | 14.4 | % | 151 | 2.1 | % | ||||||||||||||||||||||||||
| Income from operations | $ | 148,324 | 10.6 | % | $ | 108,996 | 8.4 | % | $ | 39,328 | 36.1 | % | |||||||||||||||||||||||
The increase in income from operations was due to the following:
•Income from operations for the full service center-based child care segment increased $19.4 million, or 36%, in the six months ended June 30, 2025 when compared to the same period in 2024, primarily due to increases in tuition revenue from enrollment growth and annual tuition rate increases, as well as decreases in amortization expense, partially offset by increased personnel costs.
•Income from operations for the back-up care segment increased $19.7 million, or 41%, in the six months ended June 30, 2025 when compared to the same period in 2024, primarily due to incremental gross profit contributions from expanded utilization of back-up care services, partially offset by increases in technology to improve customer experience. Income from operations for the six months ended June 30, 2024 included a $2.3 million charge related to the early settlement of contingent consideration for a 2021 acquisition.
•Income from operations for the educational advisory services segment increased $0.2 million, or 2%, in the six months ended June 30, 2025 when compared to the same period in 2024 due to revenue increases partially offset by service costs for technology and marketing.
Net Interest Expense. Net interest expense was $20.9 million for the six months ended June 30, 2025, a decrease from net interest expense of $25.7 million for the same period in 2024, primarily due to lower interest rates applicable to our debt and lower outstanding debt. The weighted average interest rate for the term loans and revolving credit facility was 4.32% for the six months ended June 30, 2025 compared to 4.98% for the same period in 2024, inclusive of the effects of the cash flow hedges.
Income Tax Expense. We recorded income tax expense of $34.6 million for the six months ended June 30, 2025 at an effective income tax rate of 27%, compared to an income tax expense of $27.1 million during the six months ended June 30, 2024, at an effective income tax rate of 33%. The difference between the effective income tax rates as compared to the statutory income tax rates was primarily due to the impact of unbenefited losses in certain foreign subsidiaries and the effects of net excess tax benefit (shortfall tax expense) associated with the exercise or expiration of stock options and vesting of restricted stock. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including changes to income before income tax, jurisdictional mix of income before income tax, unbenefited losses, valuation allowances, jurisdictional income tax rate changes, as well as discrete items such as non-deductible transaction costs, the settlement of foreign, federal and state tax matters and the effects of excess tax benefit (shortfall tax expense) associated with the exercise or expiration of stock options and vesting of restricted stock.
During the six months ended June 30, 2025, the net excess tax benefit from stock-based compensation decreased tax expense by $1.3 million. During the six months ended June 30, 2024, the net shortfall tax expense from stock-based compensation increased tax expense by $0.6 million. For the six months ended June 30, 2025 and 2024, prior to the inclusion of the excess tax benefit (shortfall tax expense), other discrete items and unbenefited losses in certain foreign jurisdictions, the effective tax rate approximated 27%.
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Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA and adjusted income from operations increased $30.3 million, or 17%, and $39.3 million, or 36%, respectively, for the six months ended June 30, 2025 over the comparable period in 2024 primarily due to the incremental gross profit contributions from the back-up care segment resulting from increased utilization and from the full service center-based child care segment resulting from enrollment growth and tuition price increases.
Adjusted Net Income. Adjusted net income increased $25.3 million, or 31%, for the six months ended June 30, 2025 when compared to the same period in 2024, primarily due to the increase in adjusted income from operations and lower interest expense.
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Non-GAAP Financial Measures and Reconciliation
In our quarterly and annual reports, earnings press releases and conference calls, we discuss key financial measures that are not calculated in accordance with GAAP to supplement our consolidated financial statements presented on a GAAP basis. These non-GAAP financial measures of adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are reconciled from their respective measures determined under GAAP as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (In thousands, except share data) | |||||||||||||||||||||||
| Net income | $ | 54,775 | $ | 39,174 | $ | 92,824 | $ | 56,163 | |||||||||||||||
| Interest expense - net | 10,555 | 12,013 | 20,906 | 25,694 | |||||||||||||||||||
| Income tax expense | 20,722 | 17,872 | 34,594 | 27,139 | |||||||||||||||||||
| Depreciation | 21,070 | 19,612 | 41,341 | 39,600 | |||||||||||||||||||
|
Amortization of intangible assets(a)
|
1,664 | 5,854 | 3,268 | 13,499 | |||||||||||||||||||
| EBITDA | 108,786 | 94,525 | 192,933 | 162,095 | |||||||||||||||||||
| Additional adjustments: | |||||||||||||||||||||||
|
Stock-based compensation expense (b)
|
6,829 | 8,105 | 14,986 | 15,516 | |||||||||||||||||||
| Total adjustments | 6,829 | 8,105 | 14,986 | 15,516 | |||||||||||||||||||
| Adjusted EBITDA | $ | 115,615 | $ | 102,630 | $ | 207,919 | $ | 177,611 | |||||||||||||||
| Income from operations | $ | 86,052 | $ | 69,059 | $ | 148,324 | $ | 108,996 | |||||||||||||||
| Adjusted income from operations | $ | 86,052 | $ | 69,059 | $ | 148,324 | $ | 108,996 | |||||||||||||||
| Net income | $ | 54,775 | $ | 39,174 | $ | 92,824 | $ | 56,163 | |||||||||||||||
| Income tax expense | 20,722 | 17,872 | 34,594 | 27,139 | |||||||||||||||||||
| Income before income tax | 75,497 | 57,046 | 127,418 | 83,302 | |||||||||||||||||||
|
Amortization of intangible assets(a)
|
1,664 | 5,854 | 3,268 | 13,499 | |||||||||||||||||||
|
Stock-based compensation expense (b)
|
6,829 | 8,105 | 14,986 | 15,516 | |||||||||||||||||||
|
Other costs (c)
|
551 | - | 551 | - | |||||||||||||||||||
| Adjusted income before income tax | 84,541 | 71,005 | 146,223 | 112,317 | |||||||||||||||||||
|
Adjusted income tax expense (d)
|
(23,037) | (19,704) | (40,000) | (31,395) | |||||||||||||||||||
| Adjusted net income | $ | 61,504 | $ | 51,301 | $ | 106,223 | $ | 80,922 | |||||||||||||||
| Weighted average common shares outstanding - diluted | 57,713,111 | 58,438,186 | 57,831,930 | 58,374,296 | |||||||||||||||||||
| Diluted adjusted earnings per common share | $ | 1.07 | $ | 0.88 | $ | 1.84 | $ | 1.39 | |||||||||||||||
(a)Amortization of intangible assets represents amortization expense, including amortization expense of $3.3 million and $8.3 million for the three and six months ended June 30, 2024, respectively, 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 and six months ended June 30, 2025 consist of costs incurred in connection with the April 2025 debt refinancing of $0.6 million, which are included in interest expense on the statement of income.
(d)Adjusted income tax expense represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 27% for the three and six months ended June 30, 2025 and approximately 28% for the three and six months ended June 30, 2024. 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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Adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are financial measures that are not calculated in accordance with GAAP (collectively referred to as "non-GAAP financial measures"), and 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. We believe the non-GAAP financial measures provide investors with useful information with respect to our historical operations. We present the non-GAAP financial measures as supplemental performance measures because we believe they facilitate a comparative assessment of our operating performance relative to our performance based on our results under GAAP, while isolating the effects of some items that vary from period to period. Specifically, adjusted EBITDA allows for an assessment of our operating performance and of our ability to service or incur indebtedness without the effect of non-cash charges, such as depreciation, amortization, and stock-based compensation expense, and non-recurring costs, as applicable, such as debt refinancing costs, impairment costs and transaction costs. In addition, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share allow us to assess our performance without the impact of the specifically identified items that we believe do not directly reflect our core operations. These non-GAAP financial measures also function as key performance indicators used to evaluate our operating performance internally, and they are used in connection with the determination of incentive compensation for management, including executive officers. Adjusted EBITDA is also used in connection with the determination of certain ratio requirements under our credit agreement.
Adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are not measurements of our financial performance under GAAP and should not be considered in isolation or as an alternative to income before taxes, net income, diluted earnings per common share, net cash provided by (used in) operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Consequently, our non-GAAP financial measures should be considered together with our consolidated financial statements, which are prepared in accordance with GAAP and included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We understand that although adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are frequently used by securities analysts, lenders and others in their evaluation of companies, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•adjusted EBITDA, adjusted income from operations and adjusted net income do not fully reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
•adjusted EBITDA, adjusted income from operations and adjusted net income do not reflect changes in, or, cash requirements for, our working capital needs;
•adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt; and
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA, adjusted income from operations and adjusted net income do not reflect any cash requirements for such replacements.
Because of these limitations, adjusted EBITDA, adjusted income from operations and adjusted net income should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
Liquidity and Capital Resources
Our primary cash requirements are for the ongoing operations of our existing early education and child care centers, back-up care, educational advisory services, the addition of new centers through development or acquisitions, and debt financing obligations. Our primary sources of liquidity are our existing cash, cash flows from operations, and borrowings available under our revolving credit facility. We had $179.2 million in cash ($197.1 million including restricted cash) as of June 30, 2025, of which $80.5 million was held in foreign jurisdictions, compared to $110.3 million in cash ($123.7 million including restricted cash) as of December 31, 2024, of which $45.5 million was held in foreign jurisdictions. Operations outside of North America accounted for 29% and 28% of our consolidated revenue in the six months ended June 30, 2025 and 2024, respectively. The net impact on our liquidity from changes in foreign currency exchange rates was not material for the six months ended June 30, 2025 and 2024. While we expect to be impacted by fluctuations in the foreign currency exchange rates throughout the year, we do not currently expect that the effects of changes in foreign currency exchange rates will have a material net impact on our liquidity and capital resources for the remainder of 2025.
Our revolving credit facility is part of our senior secured credit facilities. On April 17, 2025, we amended our existing senior secured credit facilities to, among other changes, increase our revolving credit facility from $400 million to $900 million and extend the date of maturity. On the closing date, we used proceeds from our revolving credit facility to repay the outstanding balances under the term loan A facility. As of June 30, 2025 and December 31, 2024, $483.3 million and $384.8 million, respectively, of the revolving credit facility was available for borrowing.
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We had a working capital deficit of $366.3 million and $283.4 million as of June 30, 2025 and December 31, 2024, respectively. Our working capital deficit has primarily arisen from using cash to make long-term investments in fixed assets and acquisitions, deferred consideration issued in relation to one acquisition, from share repurchases, and short term borrowings on our long-term debt.
As of June 30, 2025, we had $852.5 million in lease liabilities, $106.3 million of which is short term in nature. Refer to Note 3, Leases, to our condensed consolidated financial statements for additional information on leases, including the maturity of the contractual obligations related to our lease liabilities.
The board of directors authorized a share repurchase program of up to $500 million of our outstanding common stock, effective June 3, 2025. The share repurchase program has no expiration date and replaced and canceled the prior $400 million authorization announced December 2021, of which $58.9 million remained available thereunder. During the six months ended June 30, 2025, we repurchased approximately 0.5 million shares for $60.7 million (resulting in a $0.2 million excise tax liability). During the six months ended June 30, 2024, we did not make any share repurchases under the board-approved repurchase program. All repurchased shares have been retired and, as of June 30, 2025, $494.1 million remained available for future repurchases.
We believe that funds provided by operations, our existing cash balances and borrowings available under our revolving credit facility will be adequate to fund all obligations and liquidity requirements for at least the next 12 months. However, if we were to experience disruption from events not in our control, such as a global health crisis, or if we were to undertake any significant acquisitions or make investments in the purchase of facilities for new or existing centers, we could require financing beyond our existing cash and borrowing capacity, and it could be necessary for us to obtain additional debt or equity financing. We may not be able to obtain such financing on reasonable terms, or at all.
| Cash Flows | Six Months Ended June 30, | ||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities | $ | 220,374 | $ | 225,750 | |||||||
| Net cash used in investing activities | $ | (37,968) | $ | (64,132) | |||||||
| Net cash used in financing activities | $ | (116,087) | $ | (106,757) | |||||||
| Cash, cash equivalents and restricted cash - beginning of period | $ | 123,715 | $ | 89,451 | |||||||
| Cash, cash equivalents and restricted cash - end of period | $ | 197,079 | $ | 143,589 | |||||||
Cash Provided by Operating Activities
Cash provided by operating activities was $220.4 million for the six months ended June 30, 2025, compared to $225.8 million for the same period in 2024. The decrease in cash provided by operations primarily relates to less cash provided by working capital arising from the timing of billings and payments when compared to the prior year, partially offset by an increase in net income of $36.7 million.
Cash Used in Investing Activities
Cash used in investing activities was $38.0 million for the six months ended June 30, 2025 compared to $64.1 million for the same period in 2024. The decrease in cash used in investing activities primarily relates to a decrease in net purchases of debt securities and other investments. Net proceeds from debt securities held by our captive insurance entity and other investments were $1.2 million in the six months ended June 30, 2025, compared to net purchases of $18.6 million during the same period in the prior year, a net decrease of cash used of $19.8 million.
During the six months ended June 30, 2025, we had net investments of $34.0 million in fixed asset purchases for maintenance and refurbishments in our existing centers, technology, and new child care centers, compared to net investments of $42.0 million during the same period in the prior year. Lastly, during the six months ended June 30, 2025, we invested $5.1 million in acquisitions, compared to an investment of $3.5 million during the same period in 2024.
Cash Used in Financing Activities
Cash used in financing activities was $116.1 million for the six months ended June 30, 2025 compared to $106.8 million for the same period in 2024. Significant financing activities in the six months ended June 30, 2025 included net borrowings under the revolving credit facility of $401.5 million, which were partially offset by the repayment of the outstanding balance of our term loan A facility of $362.5 million, neither of which occurred in the same period in the prior year. Additionally, there was an increase in other payments of principal related to our long-term debt, which were $88.5 million in the six months ended June 30, 2025 compared to $8.0 million during the six months ended June 30, 2024. In February and May 2025, we voluntarily prepaid $44.5 million and $39.0 million, respectively, of the outstanding principal balance on our term loan B facility.
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During the six months ended June 30, 2024, we made payments for deferred and contingent consideration of $103.9 million, of which $97.7 million related to the deferred consideration for the 2022 acquisition of Only About Children and $6.2 million related to the contingent consideration for a 2021 acquisition. We did not make any payments for deferred consideration in the same period in 2025.
During the six months ended June 30, 2025 we used $60.3 million in cash for share repurchases, compared to no repurchases during the same period in 2024, and taxes paid related to the net share settlement of stock options and restricted stock increased to $13.6 million in the six months ended June 30, 2025, compared to $1.8 million in the same period in 2024. Proceeds received from the exercise of stock options in the six months ended June 30, 2025 of $10.2 million increased from $6.9 million in the six months ended June 30, 2024 due to a higher volume of transactions and higher exercise prices.
Debt
Our senior secured credit facilities consist of a term loan B facility ("term loan B") and a $900 million multi-currency revolving credit facility ("revolving credit facility"). Prior to April 17, 2025, the our senior secured credit facilities also included a term loan A facility ("term loan A").
Long term debt obligations were as follows:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Term loan B | $ | 500,000 | $ | 583,500 | |||||||
| Term loan A | - | 367,500 | |||||||||
| Revolving credit facility | 401,500 | - | |||||||||
| Deferred financing costs and original issue discount | (3,044) | (4,051) | |||||||||
| Total debt | 898,456 | 946,949 | |||||||||
| Less current portion of term loans | - | (28,500) | |||||||||
| Less current portion of revolving credit facility | (101,500) | - | |||||||||
| Long-term debt | $ | 796,956 | $ | 918,449 | |||||||
As noted above, on April 17, 2025, we amended our existing senior secured credit facilities to, among other changes, increase the revolving credit facility from $400 million to $900 million and extend the date of maturity. On the closing date, we used proceeds from the revolving credit facility to repay the outstanding balances under the term loan A facility, which was scheduled to mature on November 23, 2026. On December 11, 2024, we amended our existing senior secured credit facilities to, among other changes, reduce the applicable interest rates of the term loan B facility.
The term loan B matures on November 23, 2028 and as a result of voluntary prepayments totaling $83.5 million in 2025 the remaining principal balance of $500 million is due at maturity.
The revolving credit facility matures on August 24, 2028. At June 30, 2025, borrowings outstanding on the revolving credit facility were $401.5 million and letters of credit outstanding were $15.2 million, with $483.3 million available for borrowing. At December 31, 2024, there were no borrowings outstanding on the revolving credit facility, and letters of credit outstanding were $15.2 million, with $384.8 million available for borrowing.
Borrowings under the credit facilities are subject to variable interest. We mitigate our interest rate exposure with interest rate cap agreements. In December 2021, we entered into interest rate cap agreements with a total notional value of $900 million. Interest rate cap agreements for $600 million, which had a forward starting effective date of October 31, 2023 and expire on October 31, 2025, provide us with interest rate protection in the event the one-month term SOFR rate increases above 2.4%. Interest rate cap agreements for $300 million, which had a forward starting effective date of October 31, 2023 and expire on October 31, 2026, provide us with interest rate protection in the event the one-month term SOFR rate increases above 2.9%.
In March and July 2025, we entered into additional interest rate cap agreements with a total notional value of $150 million and $100 million, respectively, designated and accounted for as cash flow hedges from inception. The March and July 2025 interest rate cap agreements, both of which have forward starting effective dates of October 31, 2025, provide the us with interest rate protection in the event the one-month term SOFR rate increases above 3.5% and 3.0%, respectively, and expire on October 31, 2027 and October 31, 2026, respectively.
The blended weighted average interest rate for the term loans and revolving credit facility was 4.32% and 4.98% for the six months ended June 30, 2025 and 2024, respectively, including the impact of the cash flow hedges. Based on our current interest rate projections, we estimate that our overall weighted average interest rate will be between 4.75% and 5.00% for the remainder of 2025, inclusive of the effects of the cash flow hedges.
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The revolving credit facility requires Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a maximum first lien net leverage ratio. A breach of this covenant is subject to certain equity cure rights. The credit agreement governing the senior secured credit facilities contains certain customary affirmative covenants and events of default. We were in compliance with our financial covenant at June 30, 2025. Refer to Note 6, Credit Arrangements and Debt Obligations, to our condensed consolidated financial statements for additional information on our debt and credit arrangements, future principal payments of long-term debt, and covenant requirements.
Critical Accounting Policies
For a discussion of our "Critical Accounting Policies," refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes to our critical accounting policies since December 31, 2024.
Bright Horizons Family Solutions Inc. published this content on August 07, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on August 07, 2025 at 20:45 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]