BPE

TORONTO, May 5, 2016 /CNW/ - BrightPath Early Learning Inc. ("BrightPath" or the "Company") (TSX-V: BPE), the leading Canadian provider of high-quality, comprehensive early childhood education and care, with 5,998 spaces of licensed capacity within 55 centres located in Alberta, British Columbia and Ontario, announced today its operational and financial results for the quarter ended March 31, 2016.   

Portfolio performance highlights for the quarter ended March 31, 2016 are as follows (all comparisons are against the prior year period):

• Revenue increased 8.7% to a record $14.8 million, with higher revenue reported across all three provincial markets served by the Company;
• A 3.9% increase in centre margin to a record level of $4.1 million;
• Adjusted EBITDA declined to $1.6 million from $1.8 million, primarily reflecting lower enrollment in select Alberta centres;
• Funds from Operations ("FFO") of $1.2 million ($0.010 per share) compared to $1.5 million ($0.013 per share);
• Adjusted Funds from Operations ("AFFO") of $1.3 million ($0.010 per share) compared to $1.5 million ($0.012 per share); and
• Available capital of $22.4 million at quarter-end to fund the Company's pipeline of growth initiatives, including both the announced additional 567 licensed spaces that represent a 9% increase in the Company's current portfolio, as well as other growth initiatives not yet announced.

Synopsis and Outlook

While the Company's operations in Alberta have not been immune from the economic weakness in the provincial economy, the Company also achieved significant and notable success with its recently-opened, state-of-the-art centres in Calgary and Edmonton. The Company experienced enrollment losses in select stabilized centres particularly during the latter part of 2015 and early 2016. Since then, however, enrollment levels have shown signs of recovering.

On a very positive note, the Creekside Centre in Calgary, opened in November 2015 with 247 licensed spaces, and West Henday Centre in Edmonton, opened in April 2016 with 247 licensed spaces, have achieved committed enrollments of 98% and 90%, respectively, for their full day care program components. These remarkable enrollment levels, notwithstanding the challenges in the Alberta economy, were accomplished well within industry metrics which typically anticipate a two-year period for the absorption of spaces in the market and centre stabilization. This is strong validation of both the quality of the Company's product and its ability to effectively identify under-served markets within major metropolitan areas. These new centres represent a 9% increase in capacity that is immediately accretive to BrightPath's financial performance.

In British Columbia, the Company continues to focus on building enrollments and managing labour and operating costs to continuously improve earnings and cash flow. The Company is looking for opportunities to grow and develop larger facilities offering an appropriate scale of operations in the suburban markets surrounding Vancouver.

In Ontario, the supply of licensed spaces continues to adjust to the new patterns of demand for early childhood development and care. On a year over year basis, as at the date of this report, enrollments have increased from 78% to 82%, illustrating the still early stages of recovery in this market. The Company continues to concentrate on becoming Ontario parents' provider of choice as we pursue opportunities to add capacity and grow BrightPath's base of centres.

On the operational front, the Company continues to refine its operating procedures and results through optimization of room configurations to meet market demand while we tightly manage labour and other costs. Furthermore, the Company has sped up cash collection, made the process more efficient and lowered credit losses through greater utilization of electronic banking and collections. The Company's investment in robust customer relationship management (CRM), together with its redesigned and enhanced website, is driving traffic to our website and to our centres, improving the conversion from enquiry to enrollment. These tools are new and their effectiveness will improve with experience.

As noted on earlier occasions, BrightPath's management and board of directors believe that the price of the Company's common shares on the TSX Venture Exchange does not reflect the Company's current value, operational performance, financial results, strategic achievements, or growth prospects. The Company further notes that its owned real estate portfolio with a gross book value of $47 million relative to its market capitalization implies minimal valuation to its business and hence a significant discount to net asset value.

It is the Company's express intention to close the gap between net asset value and market capitalization by continuing to execute its business initiatives successfully, as demonstrated by its recent positive experience in Alberta in the midst of market uncertainty and the substantial improvement in its Ontario portfolio performance. As well, initiatives to surface shareholder value, as discussed earlier, will continue to be pursued.

Other significant events to date in 2016 include:

• Following on the enrollment success and demonstrated market demand for the Creekside Centre, the Company decided to proceed with the Sage Hill Centre in Riocan REIT's Sage Hill Crossing shopping centre located nearby. Construction of this 10,000 square foot leasehold facility, offering approximately 130 licensed spaces, is scheduled to begin in the third quarter of 2016 with completion in the first quarter of 2017. The Sage Hill Centre is within 1.5 kilometres of the Creekside Centre and should benefit from, and leverage, its close proximity to serve the demand for quality childhood development and care in the new neighbouring communities in this area;
• Development of the Company's new centre located in First Capital Realty Inc.'s London Place West shopping centre in southwest Calgary continues to progress through the design and permitting processes. When completed, the Richmond Early Learning and Child Care Centre will offer 247 licensed spaces in a 20,000 square foot facility on a one acre parcel of land in an under-served suburban market; and
• Under the Company's normal course issuer bid ("NCIB"), during the three months ended March 31, 2016, the Company purchased 469,500 shares for cancellation, of which 297,500 had been cancelled at March 31, 2016. Cumulatively to date, the Company has purchased for cancellation 1,817,700 shares under its NCIB program at an average price of $0.33 per share.

"The Company's outlook in Alberta is cautiously optimistic as enrollment levels showed indications of stability during the first quarter of 2016 and continue to do so. It is most encouraging that our newly-opened, state-of-the-art centres continue to fill at a pace that belies the current economic weakness in Alberta, underscoring the premise that unmet demand continues to exist in select markets in Western Canada," noted Mary Ann Curran, Chief Executive Officer of the Company. "Along with strong improvements across all metrics in British Columbia and Ontario, BrightPath continues to demonstrate its commitment to providing the very best early childhood education and care, as well as excellent service, to our families. This continues to drive the Company's operating success."

Financial Review

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

For the quarter ended March 31, 2016, the Company reported record revenue of $14,830 (March 31, 2015 - $13,647) and record centre margin of $4,102 (March 31, 2015 - $3,949). Revenue increased 8.7% due to tuition from new locations in Cochrane and Calgary, Alberta, and year over year increases in fees. This was partially offset by a decline in Stabilized centre average occupancy from 86.0% to 82.9%, as a result of a decrease in enrollment levels in select centres in Alberta. Centre margin as a percentage of revenue decreased to 27.7% compared to 28.9% a year earlier; this decline was caused by limited labour savings on lower enrollment levels due to regulated staff ratios, as well as the labour and operating expense impact of new centres which initially tend to operate less efficiently until enrollments build and operations stabilize.

Adjusted EBITDA for the first quarter of 2016 was $1,575 compared to $1,819 in 2015. This decrease was primarily due to lower enrollment levels in Alberta, partially offset by higher centre margins in British Columbia and Ontario, and higher operating lease expense resulting from the McKenzie Towne centre sale and leaseback completed in August 2015. Higher general and administrative costs, attributable to inflationary pressures, an investment in the redesign and enhancement of the Company's website to drive enrollments and higher information technology costs, the latter of which is anticipated to decline during the second half of 2016, also impacted Adjusted EBITDA.

Net loss for the first quarter of 2016 was $182 compared to a net profit of $296 in the first quarter of 2015. Basic and diluted net profit (loss) per share for the quarter ended March 31, 2016 was $(0.002) (March 31, 2015 - $0.002). 

For the quarter ended March 31, 2016, Alberta Stabilized centre occupancies averaged 85.3% compared to 91.3% in 2015. However, these occupancies exhibited a slight improvement on a sequential basis compared to the fourth quarter of 2015 level of 84.7% as enrollment levels showed indications of stability late in the first quarter of 2016. Despite the economic challenges in Alberta, strong market demand for child development and care in newly opened centres located in under-served suburban sectors of Calgary, Edmonton and Vancouver has resulted in these state-of-the-art centres achieving enrollment levels significantly in advance of the typical industry metric of a 24-month period, which is the standard for enrollment stabilization. In this regard, the West Henday Centre, which opened in April 2016, has already achieved a 90% enrollment commitment for its full day care spaces, with enrollment of before and after school spaces gaining momentum. The Creekside Centre, which opened in November 2015, has achieved 98% enrollment for its full day care, with enrollment of before and after school spaces steadily building. Enrollment at the Cochrane facility, opened in September 2015, has also continuously improved with committed enrollments of 67%.

In Ontario, with a more stable market landscape and clearer understanding of the new demand patterns for early childhood development and care, management is concentrating on building enrollment levels and pursuing opportunities for growth in this market. For the quarter ended March 31, 2016, Ontario portfolio occupancies averaged 76.5% compared to 74.9% in 2015. At present, the enrollment level in Ontario centres is 82% compared to 78% a year ago, reflecting effective reconfiguration of centres with greater emphasis on infant spaces and marketing strategies.

Occupancy in Stabilized centres in British Columbia increased to 85.4% for the quarter ended March 31, 2016 from 84.0% in 2015. The newly-developed facility located in the under-served suburb of Surrey, which opened in September 2014, achieved improved average occupancy of 76.5% during the first quarter of 2016 compared to 38.4% in 2015 and is anticipated to continue to build to more than 80% of licensed capacity as the centre nears stabilization later this year. 

Adjusted EBITDA, AFFO and FFO

FFO for the first quarter of 2016 was $1,230 compared to $1,551 in the first quarter of 2015, reflecting lower Adjusted EBITDA. FFO per share for the first quarter of 2016 was $0.010 compared to $0.013 for the same period in 2015. 

AFFO for the first quarter of 2016 was $1,255 compared to $1,516 a year earlier primarily due to lower FFO. AFFO per share for the first quarter of 2016 was $0.010 compared to $0.012 for the first quarter of 2015.

Centre Portfolio Overview

The Company's centre locations, number of licensed spaces and average occupancies are provided in the table that follows. Centres typically experience lower levels of attendance June through August due to seasonal factors. As well, new centres typically exhibit lower occupancy levels during ramp up of enrollments, thereby adversely impacting total portfolio occupancies prior to achieving stabilization.  

Deferred Share Units ("DSUs")

For the three months ended March 31, 2016, 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 $0.07 million fair value in respect of 219,790 DSUs. The DSUs were issued on April 29, 2016.

NON- IFRS PERFORMANCE MEASURES

The Company uses "centre margin" as an indicator of centre performance. 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 include labour and direct costs and exclude operating lease expense for leasehold properties and mortgage interest, if any, on those properties owned by the Company.

The Company also uses Adjusted EBITDA, FFO and AFFO as indicators of financial performance.

Adjusted EBITDA is calculated by deducting the following from centre margin: operating lease expense, general and administrative expenses, and taxes other than income taxes. FFO is calculated by adjusting net profit (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 share-based compensation and deduct maintenance capital expenditures. Maintenance capital expenditures consist of capital expenditures that are capitalized for accounting purposes but are considered to be recurring costs such as facilities and leasehold maintenance and the replacement of learning materials, toys, furniture, appliances and other equipment. Maintenance capital expenditures do not occur evenly over the course of the year with these activities typically occurring with greater intensity during the seasonally slower summer months.

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 profit (loss) for the purpose of evaluating operating performance.

Centre operating results are also analyzed based on Stabilized and Non-stabilized centres which may not be comparable with that used by other entities. Acquired and newly-developed centres are deemed to be stabilized after 24 months, or sooner if pro forma occupancy levels are achieved.

Net profit (loss) is impacted by, among other items, accounting standards that require centre acquisition and transaction costs to be expensed as incurred. As the Company executes its consolidation and development strategy in the Canadian 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, May 6, 2016 at 10:00 am EST. The call details are as follows:

To access the conference call by telephone, dial (647) 427-7450 or (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 at:
http://event.on24.com/r.htm?e=1177230&s=1&k=E85FB975F57492C959D4F034E6345890

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 at the above website for 90 days.

The conference call will be archived for replay until Friday, May 20, 2016 at midnight. To access the archived conference call, dial (416) 849-0833 or (855) 859-2056 and enter the reservation number 96331597 followed by the number sign.

ABOUT BRIGHTPATH EARLY LEARNING INC.

BrightPath Early Learning Inc. is a Canadian leader in child care and early education with 55 locations in major markets across the country. Meeting the highest standards in curriculum, nutrition, technology and recreational programming, BrightPath is committed to providing families with the very best child development and care Canada has to offer. 

For more information, visit www.BrightPathKids.com/corporate (TSX‐V: BPE).

FORWARD-LOOKING STATEMENTS

Certain statements contained herein constitute forward-looking statements regarding the future growth, results of operations, performance and opportunities of the Company. Forward-looking statements can generally be identified by the use of, but not limited to, the following words: "plans", "expects" or "does not expect", "budget", "scheduled", "estimate", "forecast", "pro forma", "anticipate" or "does not anticipate", "believe", "intend", "inferred", "potential" and similar expressions or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements are not historical facts, but reflect the Company's current expectations regarding future results or events based on information currently available and what the Company believes to be reasonable assumptions. All forward-looking statements are qualified by these cautionary statements. 

Forward-looking statements are subject to a number of risks, assumptions and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results or events to differ materially from those expressed, implied or projected include, but are not limited to, general economic conditions, the Company's ability to meet and maintain forecasted occupancy levels, general government policies, continued availability of government child care subsidies to parents, unexpected costs or liabilities related to acquisitions, construction, environmental matters, legal matters, changes in interest rates, credit spreads and the availability of financing. In addition, please refer to the Risks and Uncertainties section of the Company's annual Management's Discussion and Analysis. As such, the Company gives no assurance that actual results will be consistent with these forward-looking statements.

Readers should not place undue reliance on any such forward-looking statements. These forward-looking statements are made as of the date hereof. The Company undertakes no obligation to publicly update or revise any such statement, reflect new information or reflect the occurrence of future events or circumstances, except as required by securities laws.

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Consolidated Statements of Operations and Comprehensive Income (Loss)
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Consolidated Statements of Changes in Shareholders' Equity
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SOURCE BrightPath Early Learning Inc.