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Child care and education company Bright Horizons (NYSE:BFAM) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 11.1% year on year to $670.1 million. The company's outlook for the full year was also close to analysts' estimates with revenue guided to $2.68 billion at the midpoint. It made a non-GAAP profit of $0.88 per share, improving from its profit of $0.64 per share in the same quarter last year.
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Bright Horizons (BFAM) Q2 CY2024 Highlights:
- Revenue: $670.1 million vs analyst estimates of $666.1 million (small beat)
- EPS (non-GAAP): $0.88 vs analyst estimates of $0.73 (20.7% beat)
- The company slightly lifted its revenue guidance for the full year from $2.65 billion to $2.68 billion at the midpoint
- EPS (non-GAAP) guidance for the full year is $3.35 at the midpoint, beating analysts' estimates by 6.7%
- Gross Margin (GAAP): 24.2%, up from 20.4% in the same quarter last year
- Free Cash Flow of $86.8 million, down 10.4% from the previous quarter
- Market Capitalization: $6.97 billion
Education ServicesA whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, Bright Horizons's sales grew at a weak 5.2% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Bright Horizons's annualized revenue growth of 16.8% over the last two years is above its five-year trend, suggesting some bright spots.
This quarter, Bright Horizons's year-on-year revenue growth clocked in at 11.1%, and its $670.1 million of revenue was line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 9.3% over the next 12 months, a deceleration from this quarter.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Bright Horizons has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 7.8%, subpar for a consumer discretionary business.
Bright Horizons's free cash flow clocked in at $86.8 million in Q2, equivalent to a 13% margin. The company's cash profitability regressed as it was 2.3 percentage points lower than in the same quarter last year, but it's still above its two-year average. We wouldn't read too much into this quarter's decline because investment needs can be seasonal, leading to short-term swings. Long-term trends are more important.
Key Takeaways from Bright Horizons's Q2 Results We enjoyed seeing Bright Horizons exceed analysts' revenue and EPS expectations this quarter. We were also glad its full-year revenue and earnings guidance exceeded Wall Street's estimates. Overall, we think this was a really good quarter that should please shareholders. The stock traded up 1.6% to $120.10 immediately after reporting.
