Ms. Mary Ann Curran reports
BRIGHTPATH DELIVERS SIGNIFICANT INCREASE IN SIX MONTH ADJUSTED EBITDA AND INITIATES SHAREHOLDER VALUE ENHANCING TRANSACTIONS
Brightpath Early Learning Inc. has released its operational and financial results for the three- and six-month periods ended June 30, 2015.
Portfolio performance highlights for the quarter ended June 30, 2015, are as follows (all comparisons are with the same period in prior year and all dollar amounts are in thousands, except per-share amounts, unless otherwise noted):
- A new record for quarterly revenue of $13.9-million, an increase of 5.5 per cent;
- Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $1.8-million, an increase of 4.5 per cent;
- Centre margin rose to 28.6 per cent of revenue, compared with 27.8 per cent;
- Average occupancy of stabilized centres was 86.9 per cent, compared with 87.5 per cent;
- Funds from operations (FFO) of $1.4-million (1.2 cents per share), an increase of 1.5 per cent;
- Adjusted funds from operations (AFFO) of $1.4-million (1.1 cents per share), an increase of 0.9 per cent;
- Significant progress in the occupancy growth of the Clayton Hills centre in Surrey, B.C., which opened in September, 2014. Occupancy is, at present, 49 per cent, which puts it on track to reach stabilization well in advance of the 24-month period that industry metrics typically anticipate. Based on confirmed enrolments, the company anticipates that occupancy in September will exceed 60 per cent and the threshold required for profitability. In the interim, the adverse effect of the financial loss during stabilization has negatively affected the company's reported profitability, adjusted EBITDA, FFO and AFFO reported herein;
- Available capital of $23.8-million at quarter-end to finance the company's pipeline of growth initiatives, including the announced additional 1,055 licensed spaces, or 19.4-per-cent increase in the company's current portfolio of 5,443 spaces, and other initiatives not yet announced.
Highlights for the six months ended June 30, 2015, include:
- Revenues of $27.6-million, an increase of 6.5 per cent;
- Adjusted EBITDA of $3.6-million, an increase of 10.3 per cent;
- Higher centre margin of 28.8 per cent of revenue, compared with 28.2 per cent;
- A 12.1-per-cent increase in FFO to $3-million and a 13.6-per-cent increase in FFO per share to 2.5 cents;
- A 7.4-per-cent increase in AFFO to $2.9-million, resulting in a 9.1-per-cent increase in AFFO per share to 2.4 cents.
Significant events to date in 2015 include:
- In February, 2015, construction of the Creekside greenfield centre in the Symons Valley area of northwest Calgary, which will open in the fall of 2015 and comprise approximately 250 licensed spaces, began;
- In May, 2015, construction of the West Henday centre, with approximately 250 licensed spaces, began. This facility, which is scheduled to open in early 2016, is the company's first Edmonton greenfield development;
- The expansion of the company's Airdrie centre, located in a community just north of Calgary, was opened in July, 2015, increasing the company's licensed capacity from 57 licensed spaces to 117;
- The company's new centre just west of Calgary in Cochrane is nearing completion, with the scheduled opening of approximately 120 licensed spaces in September, 2015;
- Brightpath entered into conditional agreements with First Capital Realty Inc. to sell the real estate underlying its McKenzie Towne location in southeast Calgary for gross proceeds of $7.5-million and lease back the property from the purchaser. This transaction creates the availability of approximately $7.3-million of capital to augment financing for the company's growth pipeline and share repurchase program. It is expected to result in a gain on disposition of approximately $1.8-million and close in the third quarter of 2015;
- The announcement of plans to develop a greenfield centre located in First Capital's London Place West shopping centre in southwest Calgary. When completed, the Richmond Early Learning and Child Care Centre will comprise approximately 245 licensed spaces in a 20,000-square-foot facility on a one-acre parcel of land. Construction of the facility is expected to begin in early 2016;
- During the three and six months ended June 30, 2015, the company purchased 67,000 and 139,500 shares for cancellation, respectively, of which 92,500 had been cancelled at June 30, 2015, under a normal course issuer bid (NCIB). Cumulatively to date, the company has purchased for cancellation 525,200 shares under its NCIB at an average price of 36 cents per share.
"Brightpath confronted challenges and leveraged opportunities during the second quarter of 2015," noted Mary Ann Curran, chief executive officer of the company. "We began our year with a strategy to address product and profitability optimization, portfolio growth, and surfacing shareholder value. In addition to solid year-over-year growth in financial results and portfolio growth, we are pleased to have validated the inherent value of our greenfield development program through a precedent-setting sale-leaseback monetization. This transaction creates the availability of capital to continue to successfully improve shareholder value."
FINANCIAL REVIEW
(in thousands of dollars, except where otherwise noted and per-share amounts)
Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013
Revenue $13,912 $13,647 $12,911 $12,013 $13,181 $12,703 $12,182 $11,211
Centre margin 3,976 3,949 3,741 2,782 3,670 3,626 3,209 2,592
Centre margin % 28.6 28.9 29.0 23.2 27.8 28.5 26.3 23.1
Adjusted EBITDA 1,781 1,819 1,889 801 1,704 1,560 926 226
FFO 1,436 1,551 1,633 517 1,415 1,250 688 (161)
AFFO 1,373 1,516 1,472 294 1,361 1,329 728 (113)
Net profit (loss) 140 296 (85) (963) 133 (653) (1,282) (1,287)
Per share amounts
FFO 0.012 0.013 0.013 0.004 0.012 0.010 0.006 (0.001)
AFFO 0.011 0.013 0.012 0.002 0.011 0.011 0.006 (0.001)
Net profit (loss) 0.001 0.002 (0.001) (0.008) 0.001 (0.005) (0.011) (0.011)
For the three months ended June 30, 2015, the company reported record revenue of $13,912 (June 30, 2014 -- $13,181) and record centre margin of $3,976 (June 30, 2014 -- $3,670). The 5.5-per-cent year-over-year increase in quarterly revenue included the beneficial effect of the Clayton Hills centre opened in September, 2014, and a 3.1-per-cent increase in stabilized centre revenue. The positive effect of fee increases in stabilized centres was offset, in part, by a decline in average occupancy from 87.5 per cent in the second quarter of 2014 to 86.9 per cent in the second quarter of 2015. Centre margin as a percentage of revenue in the second quarter of 2015 increased to 28.6 per cent, compared with 27.8 per cent in the same quarter a year earlier. Fee increases and efficiencies resulting in lower operating costs were offset, in part, by wage rate increases, non-optimal labour ratios in support of building occupancies and the reconfiguration of rooms to different age groups in Ontario.
Revenue for the six-month period ended June 30, 2015, was $27,559 (June 30, 2014 -- $25,884) and centre margin was $7,925 (June 30, 2014 -- $7,296). Centre margin as a percentage of revenue increased to 28.8 per cent, compared with 28.2 per cent in 2014. The reasons for the increases in revenue and centre margin are substantially the same as those discussed above for the second quarter of fiscal 2015. Stabilized centre revenue increased 4.3 per cent period over period.
Adjusted EBITDA for the second quarter of 2015 was $1,781, compared with $1,704 in the second quarter of 2014, an increase of 4.5 per cent. Labour as a percentage of revenue increased primarily due to higher-than-cost-of-living wage rate increases to centre staff, the effect of the Clayton Hills centre as it ramps up occupancy, non-optimal labour ratios in certain centres while occupancies build and the reconfiguration of certain rooms to younger age groups in Ontario.
Adjusted EBITDA for the six months ended June 30, 2015, was $3,600, compared with $3,264 in the same period in 2014, an increase of 10.3 per cent.
Net profit for the second quarter of 2015 was $144, compared with a net profit of $133 in the second quarter of 2014. Net profit for the six months ended June 30, 2015, was $440, compared with a net loss of $520 for the six months ended June 30, 2014. In accordance with international financial reporting standards, the company expenses all business acquisition costs in the period incurred. Acquisition and development costs, incurred for future growth and profitability, were $344 for the second quarter of 2015, compared with $232 in the second quarter of 2014. Basic and diluted net profit per share for the three and six months ended June 30, 2015, was 0.1 cent and 0.4 cent (June 30, 2014 -- 0.1 cent and (0.04 cent), respectively).
Continued oil price volatility in Alberta has affected enrolments in localized areas in this region as anticipated. Enrolment losses have centred primarily around the before- and after-school age segment, with younger age groups in full-day care showing greater strength at 96-per-cent occupancy for those children. The company is mindful of the unpredictability inherent in the market and continues to closely monitor conditions and the resulting effect on operations and make adjustments as necessary. Brightpath anticipates additional modest pressure on enrolments moving into the third quarter of 2015.
In Ontario, the company's emphasis on driving enrolments and the strategies in place to achieve this have resulted in improved occupancy in Ontario centres to 78.1 per cent in the second quarter of 2015 from 74.9 per cent in the first quarter of 2015. Compared with the three months ended June 30, 2014, occupancies in Ontario decreased slightly from 79.3 per cent.
Occupancy in stabilized centres in British Columbia increased to 85.3 per cent in the second quarter of 2015 from 83.4 per cent in the second quarter of 2014.
Adjusted EBITDA, AFFO and FFO
FFO for the second quarter of 2015 was $1,436, compared with $1,415 in the second quarter of 2014, an increase of 1.5 per cent. FFO per share for the second quarter of 2015 was 1.2 cents, compared with 1.2 cents for the same period in 2014. FFO for the six months ended June 30, 2015, was $2,987 (2.5 cents per share), compared with $2,665 (2.2 cents per share) for the six months ended June 30, 2014, an increase of 12.1 per cent. AFFO for the second quarter of 2015 was $1,373 (1.1 cents per share), compared with $1,361 (1.1 cents per share) a year earlier.
AFFO for the six months ended June 30, 2015, was $2,889, compared with $2,690 in the same period of 2014. AFFO per share for the six months ended June 30, 2015, was 2.4 cents, compared with 2.2 cents for the same period in 2014, an increase of 9.1 per cent.
Centre portfolio overview
A summary of the company's number of centres and licensed spaces, as well as average occupancies by region, is provided in the accompanying table. Centres typically experience lower levels of attendance from June through August due to seasonal factors. As well, new centre locations may exhibit lower occupancy levels during ramp-up of enrolments, thereby adversely affecting total portfolio occupancies prior to achieving stabilization.
Stabilized centres Three months ended June 30,
2015 2014
Alberta
Ending centres 30 30
Ending spaces 3,238 3,121
Average occupancy (%) 90.6 91.7
British Columbia
Ending centres 7 7
Ending spaces 577 576
Average occupancy (%) 85.3 83.4
Ontario
Ending centres 13 13
Ending spaces 1,351 1,363
Average occupancy (%) 78.6 79.8
Total stabilized centres
Ending centres 50 50
Ending spaces 5,166 5,060
Average occupancy (%) 86.9 87.5
Non-stabilized centres Three months ended June 30,
2015 2014
Alberta
Ending centres - -
Ending spaces - -
Average occupancy (%) - -
British Columbia
Ending centres 1 -
Ending spaces 206 -
Average occupancy (%) 43.5 -
Ontario
Ending centres 1 1
Ending spaces 71 71
Average occupancy (%) 69.4 68.6
Total non-stabilized centres
Ending centres 2 1
Ending spaces 277 71
Average occupancy (%) 50.1 68.6
Total portfolio Three months ended June 30,
(all centres) 2015 2014
Ending centres 52 51
Ending spaces 5,443 5,131
Average occupancy (%) 85.0 87.3
Deferred share units (DSUs)
For the three months ended June 30, 2015, pursuant to the board of directors' DSU plan, five members of the board of directors of Brightpath elected to receive board fees in the form of DSUs in lieu of cash remuneration, representing $60,000 fair value in respect of 176,213 DSUs. The DSUs were issued on July 20, 2015.
In its May 5, 2015, news release, the company reported that 219,462 DSUs were issued on April 2, 2015, pursuant to the employee DSU plan. The correct number of DSUs issued was 205,534.
Outlook
The company remains focused on delivering on its identified priorities for 2015:
- To generate substantially higher adjusted EBITDA and to optimize the return on capital invested through:
- Continuous product advancement;
- Disciplined management of enrolment and mix;
- Market-based pricing of tuition fees;
- Continuously improving management of all costs -- labour, other operating, and general and administrative;
- Realizing the cash flow from development initiatives announced in 2014 and recently in 2015, as well as those in the pipeline but not yet announced.
Continued oil price volatility has disrupted the Alberta market. The company continues to monitor conditions and the resulting effect on operations while being mindful of the unpredictability inherent in the market. The Edmonton market has remained relatively strong and vibrant due to its employment base emphasis on government, banking and insurance. The Calgary market employment base is more focused on the energy sector, with centre enrolment slippage having a more significant effect on before- and after-school enrolments than full-day child care. Brightpath anticipates additional modest pressure on enrolments moving into the third quarter of 2015.
In Ontario, the final stages of full-day kindergarten are complete and occupancies are generally stabilizing at levels now approaching 80 per cent. There are continuing signs of an encouraging trend. As compared with the first quarter of 2015, occupancies in Ontario increased from 74.9 per cent to 78.1 per cent. The company is reconfiguring rooms, which change in mix creates downward pressure on margins, but market support for fee levels remains strong.
The expansion of Brightpath's Airdrie centre in Alberta was completed and opened on schedule at the beginning of July. The remaining announced developments at the Cochrane, Creekside and West Henday locations, for which the company is experiencing momentum in preregistrations, are on schedule from a construction perspective and are expected to open beginning in late 2015 and early 2016.
The company announced today a further expansion of its growth pipeline with plans to develop a 245-licensed-space greenfield centre at First Capital's London Place West shopping centre in southwest Calgary. This is the second major greenfield transaction completed with First Capital, and builds on the success of the company's previous greenfield developments.
As the company completes its first half of operations for 2015, it is pleased with its results to date and will continue to demonstrate its commitment to its objectives going forward. Concurrently, Brightpath's management and board of directors are increasingly dismayed by the price of the company's common shares. The company has previously outlined the disconnect between the price of its common shares and the value of its increasingly profitable operations and owned real estate portfolio with a gross book value of $45-million. As such, the company is pleased to validate the financial opportunity underpinning this disconnect with the announcement today of the sale of real estate underlying its McKenzie Towne centre. This transaction creates availability of $7.3-million of capital, which is significant compared with the total equity market capitalization of the company as of today of approximately $40-million. The capital surfaced from this transaction is anticipated to augment the available financing for the company's growth pipeline of development properties and the purchase of the company's common shares.
The company believes that the undervaluation of its share price is not only significant based on its current operations and real estate holdings, but also further highlighted by the future growth of over approximately 1,000 child care spaces that have been announced. The cash flow per share that will be generated by this growth pipeline is highly accretive, as it is fully financed and can be delivered without any equity dilution to shareholders.
Real estate monetization represents just one of several initiatives that management is initiating and exploring to surface value for its shareholders.
Quarterly conference call
Brightpath's quarterly results conference call is scheduled for Thursday, July 30, 2015, at 10 a.m. ET. The call details are as follows:
To access the conference call by telephone, dial 1-647-427-7450 or 1-888-231-8191. Please connect approximately 10 minutes prior to the beginning of the call.
A live audio webcast of the conference call will be available on-line.
Please connect at least 10 minutes prior to the Web conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived for 90 days.
The conference call will be archived for replay until Thursday, Aug. 13, 2015, at midnight. To access the archived conference call, dial 1-416-849-0833 or 1-855-859-2056 and enter the reservation code 76023560 followed by the number sign.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands of dollars)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Revenue $ 13,499 $ 12,791 $ 26,745 $25,154
Government grants 413 390 814 730
Total revenue 13,912 13,181 27,559 25,884
Centre expenses
Salaries, wages and benefits 7,424 6,828 14,690 13,476
Other operating expenses 2,512 2,683 4,944 5,112
Centre margin 3,976 3,670 7,925 7,296
Operating leases 893 753 1,788 1,500
Finance 365 388 713 740
General and administrative 1,258 1,170 2,450 2,446
Taxes, other than income taxes 44 43 87 86
Restructuring - 198 - 968
Acquisition and development 344 232 658 512
Stock-based compensation 153 93 231 196
Depreciation and amortization 779 713 1,566 1,427
3,836 3,590 7,493 7,875
Profit (loss) before other income 140 80 432 (579)
Other income 4 53 8 59
Net profit (loss) and total comprehensive income (loss) $ 144 $ 133 $ 440 $ (520)
Net profit (loss) per share
Basic and diluted $ 0.001 $ 0.001 $ 0.004 $ (0.004)
We seek Safe Harbor.
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