Bright Horizons Family SolutionsBFAM

Bright Horizons reported earnings of $1.28 per share, which was higher than the $1.20 analysts expected. Revenue rose 7 percent to $779 million. While net income fell compared to last year, the company's adjusted EBITDA, a measure of core profit that excludes certain one-time costs, grew by 13 percent.

The business is seeing steady growth in its back-up care segment, which provides temporary childcare when a parent's regular plans fall through. This is a high-profit part of the business that helps offset higher costs in its traditional childcare centers. Management felt confident enough in these results to raise their financial goals for the rest of the year.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Back up care driving growth: Revenue from the back up care division, which employers use when regular care falls through, grew 19% to $193.6 million. This segment remains a primary growth engine, now making up 25% of total company revenue compared to 22% a year ago.
• Aggressive share buybacks: The company spent $473.2 million to buy back 6.6 million shares in the first half of the year, a sharp increase from the $60.7 million spent during the same period last year. Reducing the number of shares helps increase the portion of the company each remaining share represents.
• Full service centers under pressure: Operating profit in the full service child care division fell to $25.1 million from $40.3 million last year, largely because of $19.1 million in costs to write down the value of certain underperforming locations. These charges reflect the ongoing struggle to return certain individual centers to their previous levels of performance.
• Interest costs rising: Interest expenses grew to $14 million from $10.6 million a year ago, driven by new borrowing including a $375 million loan taken out in June. While the company is using debt to fund growth and buybacks, the higher rates are now eating into total net income.
• Full year outlook: Management expects total revenue for the year to land between $3.085 billion and $3.115 billion. The company also projects its full year adjusted profit per share, which is the money earned per share after removing one-time costs, will be between $5.05 and $5.15.

Our take: A solid quarter that shows the company's back-up care business is doing the heavy lifting while traditional centers still face a bumpy recovery. The massive increase in share buybacks is the most striking part of the report, as it signals management sees its own stock as a better use of cash than other investments. This quarter strengthens the case that the business can grow even while it prunes away its weaker locations.