BrightPath Reports Another Record-Setting Quarter and Expanded Growth Program

CALGARY, July 31, 2014 /CNW/ - BrightPath Early Learning Inc. ("BrightPath" or the "Company") (TSX-V: BPE), the leading Canadian provider of quality early childhood education and care, announced today its operational and financial results for the three and six month periods ended June 30, 2014.  The financial results demonstrate continuation of a successful implementation of the profitable growth strategy enunciated last year, and significant progress towards the operating and financial goals set for 2014.

Portfolio performance highlights for the three months ended June 30, 2014 are as follows (all comparisons are against the same period last year and all amounts are in thousands except per share amounts, unless otherwise noted):

• The highest quarterly revenue in the Company's history at $13.2 million, an increase of  10.4%;
• Adjusted EBITDA set a new quarterly record at $1.7 million, an increase of 84.6%;
• Funds From Operations ("FFO") of $1.4 million ($0.012 per share), an increase of 119.0%;
• Adjusted Funds From Operations ("AFFO") increased $0.7 million or 108.4% to a new quarterly record of $1.36 million ($0.011 per share);
• Improved centre margin which rose to 27.8% of revenue compared with 26.9%;
• Average occupancy was 87.3%;
• Following a restructuring that included both a reduction in corporate overhead and a cost- effective relocation of certain accounting and operational functions, general and administrative costs decreased 24.4% to $1.2 million, the third consecutive quarterly decline; and
• The Alberta portfolio generated 72% of centre margin (with 61% of the Company's licensed spaces) in the second quarter due in part to an emphasis on new, larger developments that have delivered very strong operational and financial performance. These developments serve as a template for over 800 of the additional 920 spaces which the Company has announced to grow its platform in Western Canada, as well as additional pipeline opportunities, all of which will be financed from the Company's existing financial resources.

Significant events in 2014 include the following:

• The Company announced plans to open a new child care centre in Cochrane, Alberta creating 120 spaces in leased premises in this rapidly growing, under-serviced community in close proximity to Calgary;
• BrightPath announced its intention to develop a greenfield centre in the Symons Valley area of northwest Calgary in the Creekside commercial development, developed by Hopewell Developments in conjunction with Canadian Real Estate Investment Trust ("CREIT"), representing an additional 250 licensed child care spaces modeled on the highly successful and well-received McKenzie Towne development in southeast Calgary;
• The Company's first Edmonton greenfield development, on lands within the Melcor Developments West Henday Promenade Shopping Centre representing 250 spaces, was announced;
• The Company initiated the process of expanding its Airdrie, Alberta centre from 50 licensed spaces to 111, with completion scheduled for late 2014; and
• Construction of the Surrey centre achieved substantial completion with the scheduled opening of 200 child care spaces in the fall of 2014.

"Results for the second quarter continue to demonstrate the successful execution of the Company's plan to deliver significant increases to its reported financial results and to grow profitably, most immediately in Western Canada," said Mary Ann Curran, Chief Executive Officer of BrightPath.  "The fundamentals of the business model are being optimized through an unwavering commitment to product quality and improvement and tenacity with respect to revenue optimization and cost reduction.  The active pursuit of substantial accretive growth leverages this solid business base for very significant growth in profitability."

Financial Review
($000's except where otherwise noted and per share amounts)

Selected Quarterly Information

For the three months ended June 30, 2014, the Company reported revenue of $13,181 (June 30, 2013 - $11,941) and centre margin of $3,670 (June 30, 2013 - $3,216). The year over year increase in revenue was primarily due to fee increases implemented, for the most part, effective January 1, 2014, offset by a slight decrease in average child enrollments of 0.4 percentage points. Centre margin as a percentage of revenue increased to 27.8% compared with 26.9% a year earlier, with the increase mainly attributable to utilizing the information now available through the Company's ERP system to optimize labour efficiency and costs.

Adjusted EBITDA for the second quarter of 2014 was $1,704 compared to $1,560 in the first quarter of 2014 and $923 in the second quarter of 2013. Adjusted EBITDA improved on a sequential quarter basis and compared to the second quarter of 2013 due primarily to higher centre margin and lower general and administrative expenses.

Adjusted EBITDA, AFFO and FFO – Certain Amounts Amended For Correction

FFO for the second quarter of 2014 was $1,415 compared to $1,250 in the first quarter of 2014 and $646 in the second quarter of 2013. The increase over prior quarter amounts is primarily due to higher centre margin and lower general and administrative expenses. FFO per share for the second quarter of 2014 was $0.012 compared to $0.005 for the second quarter of 2013.  

AFFO for the second quarter of 2014 was $1,361 compared to $1,329 in the first quarter of 2014 and $653 in the second quarter of 2013. AFFO increased on a sequential quarter basis primarily due to increased centre margin and lower general and administrative expenses, offset by an increase in maintenance capital expenditures which typically occur with greater intensity during the seasonally slower summer months. AFFO increased by $708 compared to the second quarter of 2013 primarily due to increased centre margin and lower general and administrative expenses, partially offset by increased finance costs, operating lease expense and maintenance capital expenditures. AFFO per share for the second quarter of 2014 was $0.011 compared to $0.005 for the second quarter of 2013.

For the three months ended June 30, 2014, comparable centre revenue increased year over year 9.3% in Alberta, 13.6% in British Columbia, and 0.8% in Ontario.  Comparable centre margin rose by 10.4% in Alberta and 32.2% in British Columbia, and declined 1.9% in Ontario. Comparable centre occupancies improved in Alberta and British Columbia, while Ontario occupancy declined compared to the prior year period due to the roll out of full day kindergarten ("FDK"). The decrease in centre margin in Ontario reflects a shift towards younger children who generate lower margins than older children affected by FDK. As a result of the completion of implementation of the Company's Enterprise Resource Planning System ("ERP"), the management of costs, particularly labour, has been considerably more effective than in previous periods.

There was a delay by one quarter in realizing the cost savings related to food procurement and other goods and services consumed in Alberta due to unforeseen personnel and implementation challenges. The impact of the savings of approximately $100,000 quarterly will be realized beginning in the third quarter. As well, earlier this year, there was a delay implementing the Company's planned services and programming for ancillary revenue. The Company has recently obtained the permits, consents and regulatory approvals to proceed on a pilot program basis commencing in September.  As such, incremental revenues related to this initiative will commence in the third quarter.

Included in comparable centres are two newly-developed centres. Enrollments at these centres continue to show strength demonstrating the pent up demand for quality child care which underpins the Company's growth strategy.

¹The number of licensed spaces at McKenzie Towne was expanded from 247 to 286 in October 2013.

New Locations

Situated in the West Henday Promenade, the Company's first new development in the Edmonton market will be located at the access point to Lewis Estates and central to several other high-growth master-planned communities. Across from a major public transit hub and adjacent to Anthony Henday Drive (Edmonton's major ring road), the primary trade area consists of more than 25,000 residents, with projected housing starts indicating a doubling of the population by 2018. Current information on the supply of child care spaces indicates fewer than 700 licensed spaces available to address existing market demand. Modelled on the highly successful McKenzie Towne and Chestermere newly-built day care centres in Calgary, the West Henday centre will comprise approximately 250 licensed child care spaces in a 20,000 square foot facility constructed on a 0.8 acre parcel of land.

The Company is securing the Edmonton land site through a long-term ground lease arrangement with Melcor Developments Ltd. (MRD-TSX). BrightPath will commence construction upon satisfaction of conditions and receipt of a development permit.

The Company's most recently announced Calgary greenfield location is located in the Symons Valley area central to five master planned residential communities and adjacent to Evanston, the fastest growing residential community in the city.  The primary trade area consists of more than 50,000 residents, with projected housing starts indicating almost twice the population by 2017. Current information on the supply of child care spaces indicates fewer than 300 licensed spaces to address existing market demand. When completed, the Symons Valley centre will house approximately 250 licensed child care spaces in a 20,000 square foot facility on a 0.9 acre parcel of land acquired through a long-term ground lease agreement. The Symons Valley centre is the Company's first project involving Hopewell Developments and CREIT.

In Cochrane, Alberta, the Company has entered into a premises lease for space to accommodate approximately 120 licensed child care spaces to meet the demand for child care in this market. The Company's centre in Cochrane will be conveniently located adjacent to Highway 1A, the arterial road that intersects with Crowchild and Stoney Trail in Calgary, reinforcing Cochrane as an increasingly desirable place to live based on its proximity to the latest generation of transportation links. The primary trade area, which consists of more than 20,000 residents, has experienced over 700 residential construction starts since 2013 and is projected to benefit from continued rapid population growth. Current information on the supply of child care indicates fewer than 470 licensed spaces. 

Child Care Centre Portfolio Overview

The Company's child care centre locations, number of licensed spaces and average occupancy rates are as shown in the table that follows.  Average occupancies exhibit lower levels of attendance June through August due to summer seasonality.

Deferred Share Units ("DSUs")

For the three months ended June 30, 2014, 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 representing $67 fair value in respect of 190,177 DSUs.  The DSUs were issued on July 15, 2014.

Executive Options and Announcement

The Company is pleased to announce the appointment of Elizabeth (Liz) Bradbeer to the position of Chief Operating Officer. Ms. Bradbeer has recently served as Vice President Operations and brings more than 20 years of experience in large multi-channel retail enterprises. Liz holds a CPA designation and Master of Accounting from the University of Waterloo.

On July 31, 2014, the board of directors ratified the issuance of stock options to Mary Ann Curran, Dale Kearns and Liz Bradbeer for 150,000, 75,000 and 50,000 options, respectively.  The options are priced at $0.55 per share, vest over a period of three years and have a term of five years. Likewise, options to purchase 75,000 common shares were granted to each of Messrs. Clarke, Gallivan, Goodman and Olin who are directors of the Company.  The options have a term of five years, vest over six months and are exercisable at $0.55 per share.

Outlook

As the Company completes its first half of operations for 2014, it is well positioned to take advantage of growth both from operating leverage and through its announced development program and pipeline opportunities.  These initiatives are anticipated to deliver an increase of approximately 25% of licensed child care spaces commencing in the current quarter with the opening of our first new leasehold development in the Vancouver area. In summary, the Company remains focussed on the following objectives:

• To generate substantially higher EBITDA through optimizing a return on capital invested - through improved management of enrollment and mix, market-based pricing of fees, and management of all costs - labour, other operating and general and administrative; and
  
• To improve upon its earlier success with new locations developed by the Company that layer on substantial, accretive growth. At quarter end the Company has available capital of $26 million to fully fund both its announced and near term pipeline growth plans.

As we move forward in 2014, the Company will continue to demonstrate its commitment to these objectives.

The Company has believed for several quarters that its common shares remain substantially undervalued. This is particularly the case in consideration of its established track record, significant improvement in the Company's financial performance, profitability, free cash flow and its growth program. In this light, the Company's board of directors has begun to consider various options to enhance shareholder value and liquidity including its approval today, subject to, among other things, regulatory approval, of the implementation of a Normal Course Issuer Bid.

NON- IFRS PERFORMANCE MEASURES

The Company uses "centre margin" as a performance indicator of child care centre operating results. Centre margin does not have a standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures by other entities. Centre margin is determined by deducting centre expenses from revenue. Centre expenses exclude net rents due under leases for leasehold properties and mortgage interest, if any, on those properties owned by the Company.

BrightPath utilizes a number of key measures, such as Adjusted EBITDA, FFO, AFFO, occupancy and centre margin, that in its opinion are critical to measuring the progress of the Company towards its objectives. The Company uses "comparable centre results" and "stabilized centre results" to measure performance. Centres are deemed to be comparable once there is a full calendar year of results for comparative purposes. Acquired centres in Alberta are deemed to be stabilized 12 months following their acquisition.  Acquired centres in Ontario and British Columbia and new development centres in all provinces are deemed to be stabilized after 24 months.

Adjusted EBITDA is calculated by deducting from centre margin: general and administrative expenses, operating lease expense and taxes other than income taxes.  FFO is calculated by adjusting the net loss to add back acquisition costs expensed as incurred, depreciation and certain other non-cash items. AFFO is calculated by adjusting FFO to add back stock based compensation and deduct maintenance capital expenditures.  Maintenance capital expenditures consist of capital expenditures that are capitalized for accounting purposes but are considered to represent recurring costs such as facilities and leasehold maintenance and the replacement of toys, appliances and other equipment.

Adjusted EBITDA, FFO and AFFO do not have standardized meanings prescribed by IFRS.  The Company's method of calculating Adjusted EBITDA, FFO and AFFO may be different from other entities and, accordingly, may not be comparable to such other entities. Adjusted EBITDA, FFO and AFFO: (i) do not represent cash flow from operating activities as defined by IFRS; (ii) are not indicative of cash available to fund all liquidity requirements, including capital for growth; and (iii) are not to be considered as alternatives to IFRS based net income for the purpose of evaluating operating performance. 

Net profit / loss is impacted by, among other items, accounting standards that require child care centre acquisition and transaction costs to be expensed as incurred.  As the Company executes its consolidation and development strategy in the Canadian child care market, it will routinely incur such expenses which will negatively impact the Company's reported net profit / loss, but not Adjusted EBITDA, FFO and AFFO.

QUARTERLY CONFERENCE CALL

BrightPath's quarterly results conference call is scheduled for Friday, August 1, 2014 at 10:00 am EST.  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. The conference call will be archived for replay until Friday, August 15, 2014 at midnight. To access the archived conference call, dial +1 (416) 849-0833 or +1 (855) 859-2056 and enter the reservation password 74649606 followed by the number sign.

A live audio webcast of the conference call will be available at: http://www.newswire.ca/en/webcast/detail/1386529/1538203. Please connect at least 10 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for 90 days.

FORWARD-LOOKING STATEMENTS:

Certain statements in this Release, which are not historical facts, may constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Any statements related to BrightPath's projected revenues, earnings, growth rates, revenue mix, staffing and resources, and product plans are forward-looking statements as are any statements relating to future events, conditions or circumstances.

The use of terms such as "believes", "anticipates", "expects", "projects", "targeting", "estimate", "intend" and similar terms are intended to assist in identification of these forward-looking statements. Readers are cautioned not to place undue reliance upon any such forward-looking statements. Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause the actual results, performance, achievements and/or developments of BrightPath to differ materially from the results, performance, achievements and/or developments expressed or implied by such forward-looking statements. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions. Except as required by law, BrightPath does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

The Company undertakes no obligation, except as required by law, to update publicly or otherwise any forward-looking information, whether as a result of new information, future events or otherwise, or the above list of factors affecting this information. Many factors could cause the actual results of BrightPath to differ materially from the results, performance, achievements and/or developments expressed or implied by such forward-looking statements.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

BrightPath Early Learning Inc.
Consolidated Statements of Financial Position
(Unaudited)

¹Certain amounts reclassified to conform to current year presentation.

BrightPath Early Learning Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
Three and six months ended June 30, 2014 and 2013
(Unaudited)

BrightPath Early Learning Inc.
Consolidated Statements of Changes in Shareholders' Equity
Six months ended June 30, 2014 and 2013
(Unaudited)

BrightPath Early Learning Inc.
Consolidated Statements of Cash Flow
Three and six months ended June 30, 2014 and 2013
(Unaudited)

SOURCE BrightPath Early Learning Inc.