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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-03-01 · 199 added, 305 removed, 298 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the “Selected Financial Data” and the audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes appearing in Item 8 of this Annual Report on Form 10-K.

This discussion contains forward-looking statements and involves numerous risks and uncertainties.

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See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements.

We are a leading provider of high-quality child care and early education, dependent care and workforce education services that are designed to help client employees better integrate work and family life, as well as grow their careers.

We provide services primarily under multi-year contracts with employers who offer child care and early education, back-up care, and educational advisory and other services as part of their employee benefits packages in an effort to support employees across life and career stages and to improve recruitment, employee engagement, productivity, retention and career advancement.

As of December 31, 2020, we had more than 1,300 client relationships with employers across a diverse array of industries, including more than 190 Fortune 500 companies and more than 80 of Working Mother magazine’s 2020 “100 Best Companies.”

At December 31, 2020, we operated 1,014 child care and early education centers, consisting of 651 centers in North America and 363 centers in Europe.

We are a leading provider of high-quality early education and child care, dependent care and workforce education services that are designed to help families, employers and their employees solve the challenges of the modern workforce and thrive personally and professionally.

We provide services primarily under multi-year contracts with employers who offer early education and child care, back-up care, and educational advisory and other services as part of their employee benefits packages in an effort to support employees across life and career stages and to improve recruitment, employee engagement, productivity, retention, and career advancement.

At December 31, 2021, we operated 1,014 early education and child care centers, consisting of 650 centers in North America and 364 centers in Europe.

We have the capacity to serve approximately 114,000 children and their families in the United States, the United Kingdom, the Netherlands and India.

We seek to cluster centers in geographic areas to enhance operating efficiencies and to create a leading market presence.

At December 31, 2020, 910 of our child care and early education centers were open.

We operate centers for a diverse group of clients.

At December 31, 2020, we managed child care centers on behalf of single employers in the following industries and also managed lease/consortium locations in approximately the following proportions:

At December 31, 2021, 977, or 96%, of our early education and child care centers were open.

At December 31, 2021, we had more than 1,350 client relationships with employers across a diverse array of industries, including more than 200 Fortune 500 companies and more than 80 of Working Mother magazine’s 2021 “100 Best Companies.” At December 31, 2021, we managed child care centers on behalf of single employers in the following industries and also managed lease/consortium locations in approximately the following proportions:

Percentage of Centers

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100.0 % 100.0 %

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Our reportable segments are comprised of (1) full service center-based child care, (2) back-up care, and (3) educational advisory and other services.

Full-service center-based child care includes traditional center-based child care, preschool and elementary education.

Back-up care includes center-based back-up child care, in-home care for children and adult/elder dependents, and self-sourced reimbursed care.

Educational advisory and other services primarily consist of tuition assistance and student loan repayment program administration, workforce education, related educational advising, college admissions advisory services, as well as Sittercity, an online marketplace for families and caregivers, which we acquired in 2020.

Center Models

We operate our centers under two principal business models:

(1) a profit and loss (“P&L”) model, and (2) a cost-plus model.

Approximately 75% of our centers operate under the P&L model.

Under this model, we retain the financial risk of operating the child care center and are therefore subject to variability in financial performance due to fluctuation in enrollment levels.

The P&L model is further classified into two subcategories:

a sponsor model, and a lease/consortium model.

Under the sponsor model, we provide child care and early education services on either an exclusive or priority enrollment basis for the employees of an employer sponsor, and the employer sponsor generally retains responsibility for the development of the child care center (which is owned or leased by the sponsor), as well as pre-opening capital equipment, and ongoing maintenance and repair.

Arrangements with employer sponsors generally have initial terms ranging from three to ten years with varying terms, renewal and termination options.

Under the lease/consortium model, the child care center is typically located in an office building or office park in a property that we lease, and we provide child care and early education services to the employees of multiple employers, as well as to families in the surrounding community.

We typically enter into leases with initial terms ranging from 10 to 15 years for these centers, often with renewal options.

When we open a new P&L center, it generally takes two to three years for the center to ramp up to a steady state level of enrollment, as a center will typically enroll younger children at the outset with children aging into the older (preschool) classrooms over time.

We refer to centers that have been open for three years or less as “ramping centers.” A center will typically achieve breakeven operating performance between 12 to 24 months and will typically achieve a steady state level of enrollment that supports our average center operating profit by the end of three years, although the time period needed to reach a steady state level of enrollment may be longer or shorter.

Centers that have been open more than three years are referred to as “mature centers.”

Approximately 25% of our centers operate under the cost-plus business model.

Under this model, we receive a fee from the employer sponsor for managing and operating their center.

Additionally, employer sponsors typically provide operating subsidies to support the ongoing provision of child care services to their employees if center operating costs exceed revenue from tuition paid by parents.

Under this model, the employer sponsor typically retains responsibility for the development of the child care center (which is owned or leased by the sponsor), as well as pre-opening capital equipment, and ongoing maintenance and repair, and the center is profitable from the outset.

Our cost-plus contracts typically have initial terms ranging from three to five years with varying terms, renewal and termination options.

For additional information about the way we operate our centers, see “ Business — Our Operations ” in Item 1 of this Annual Report on Form 10-K.

Cost of services consists of direct expenses associated with the operation of our centers, and the provision of back-up care services, including fees to back-up care providers, and educational advisory and other services.

Direct expenses consist primarily of payroll and benefits for personnel, food costs, program supplies and materials, parent marketing, and facilities costs, including occupancy costs and depreciation.

Personnel costs are the largest component of a center’s operating costs, which typically represent approximately 70% of a center’s operating expenses.

We are typically responsible for additional costs in a P&L model center as compared to a cost-plus model center.

As a result, personnel costs for centers operating under the P&L model will typically represent a smaller proportion of overall costs when compared to the centers operating under the cost-plus model.

Selling, general and administrative expenses consist primarily of payroll and benefits (including stock-based compensation costs) for corporate, regional and business development personnel.

Other overhead costs include information technology, occupancy costs for corporate and regional personnel, professional service fees, including accounting and legal services, and other general corporate expenses.

As of December 31, 2020, our consolidated total debt outstanding was $1.0 billion, and a portion of our cash flows from operations has been used to make interest payments on our indebtedness.

Interest payments were $35.3 million in 2020, a decrease from interest payments of $43.1 million in 2019, due to decreased borrowings on our revolving credit facility, as well as decreased interest rates.

Based on current applicable interest rates and estimates of changes to the underlying base rates, we expect our interest payments to approximate $36 to $38 million in 2021.

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Full service center-based child care includes traditional center-based early education and child care, preschool and elementary education.

Back-up care includes center-based back-up child care, in-home care for children and adult/elder dependents, school age camps, virtual tutoring, and self-sourced reimbursed care.

Educational advisory and other services primarily consist of tuition assistance and student loan repayment program administration, workforce education, related educational advising, college admissions advisory services, and Sittercity, an online marketplace for families and caregivers.

Additional information about our operations, structure and services is included in “ Business — Our Operations ” in Item 1 of this Annual Report on Form 10-K.

Additional segment information is included in Note 17, Segment and Geographic Information , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

COVID-19 Pandemic and 2021 Performance Factors

Since March 2020, the world has been significantly impacted by the COVID-19 pandemic.

Our global operations have been substantially disrupted by the COVID-19 pandemic and the measures to prevent its spread, such as required business and school closures and stay-at-home orders.

In mid-March 2020, in response to the challenges presented by COVID-19, we temporarily closed approximately 850, or 80%, of our centers, while continuing to operate critical health care client and “hub” centers to provide care and support services to the children whose parents worked on the front lines of the response.

As countries and local jurisdictions lifted certain restrictions, we began a phased re-opening of our temporarily closed centers, the majority of which re-opened between June and September 2020.

As of December 31, 2020, approximately 90% of our 1,014 child care and early education centers were open.

Our centers are operating with stringent COVID-19 protocols to protect the health and safety of the children, families and staff.

These practices include social distancing procedures for pick-up and drop-off, daily health screenings, the use of face masks by our staff, limited group sizes, and enhanced hygiene and cleaning practices.

We are focused on the re-enrollment and ramping of our centers, while also continuing the phased re-opening of the limited number of centers that remain temporarily closed.

The status of our operations is as follows:

• United States:

As of December 31, 2020, we had approximately 550 open centers in the United States, and approximately 100 centers remained temporarily closed.

During the year ended December 31, 2020, we opened 13 new centers and permanently closed 72 locations where demand and economics had shifted.

We are working with client partners to determine the timing and cadence of re-opening our remaining temporarily closed centers.

• United Kingdom:

As of December 31, 2020, our 299 centers in the United Kingdom were open.

During the year ended December 31, 2020, we opened 2 new centers and permanently closed 16 locations where demand and economics had shifted.

Recently re-imposed government restrictions on travel and public gatherings in response to increased COVID-19 infections, which we expect to be in effect until March 8, 2021, have resulted in reduced attendance at our child care centers, which have remained open to serve children and families in accordance with the government mandates.

• Netherlands:

As of December 31, 2020, our 62 centers in the Netherlands were open.

During the year ended December 31, 2020, we opened 3 new centers.

Centers have remained operational throughout the pandemic under the Dutch government mandate that required nurseries to remain open to serve the children of parents who work in vital professions, such as health care or emergency services.

The recent government mandate, which was in effect through February 8, 2021, re-imposed restrictions on attendance at child care centers to children of parents in vital professions only, while also reinstating the government’s support of the child care industry through the continued payment of tuition subsidies.

• Back-up Care and Educational Advisory:

Our other primary service offerings — Back-up Care and Educational Advisory — have remained fully operational for our clients and their employees.

In response to the acute need for child care support during the pandemic, we expanded back-up care services to support the needs of families affected by other child care and/or school closures, primarily through in-home and self-sourced reimbursed care.

In response to these developments, we implemented measures throughout the pandemic to manage costs and improve liquidity and access to financial resources while the majority of our centers were temporarily closed, and to thereby mitigate the impact on our financial position and operations.

These measures included, but are not limited to, the following:

• furloughing a significant portion of our employees in proportion to the number of center closures, including center personnel for temporarily closed centers and related support functions in our corporate offices;

• reducing discretionary spending and overhead costs, while prioritizing investments that support current operations and deferring to future periods nonessential investments;

• phasing the re-opening of temporarily closed centers to align with enrollment demand;

• temporary voluntary reductions in compensation to certain executive officers and board members;

• participating in government support programs, including tax deferrals, tax credits, employee wage support, and child care industry-specific grants;

• renegotiating payment terms with vendors and landlords;

• temporary suspension of share repurchases;

• amending our credit agreement in April 2020 and May 2020 to increase the borrowing capacity of our revolving credit facility from $225 million to $400 million;

• raising $249.8 million in net proceeds from the issuance and sale of common stock in April 2020.

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We believe that the Company responded well to the challenges and disruptions resulting from the COVID-19 pandemic, quickly adapting to the changing needs of clients, families and children, while remaining focused on our strategic priorities to deliver high quality education and care services, connect across our service lines, extend our impact on new customers and clients, and preserve our strong culture.

These challenging times have highlighted our crisis management abilities, our critical role in the business continuity plans of our client partners, our leadership in developing and implementing enhanced health and safety protocols, and the value that our unique service offering provides to the families and clients we serve.

As a result of these efforts, we were successful in mitigating the impact of the pandemic on our operations and financial position, generating revenue of $1.5 billion and $53.3 million of operating income in 2020.

Although our full-service center-based child care segment revenue contracted $651.7 million in 2020 to $1.0 billion, and operating income declined $321.4 million to a loss of $155.4 million as a result of the temporary closures of our centers and the associated reduction of tuition revenue due to lower overall enrollment, our back-up care segment revenue expanded by $92.0 million to $388.3 million, and operating income increased $102.5 million on significantly higher use of back-up care services arising from the prolonged disruption to work and school schedules that necessitated different child care solutions.

We remain confident in our business model, the strength of our client partnerships, the strength of our balance sheet and liquidity position, and our ability to continue to respond to changing market conditions.

However, the broad effects of COVID-19, its duration and scope of the ongoing disruption cannot be predicted and is affected by many interdependent variables and decisions by government authorities and our client partners, as well as demand, economic trends, the adoption and effectiveness of a vaccine, and developments in the persistence and treatment of COVID-19.

As this is a continuously changing environment, we cannot anticipate how long it will take for re-opened centers to reach typical enrollment levels and there is no assurance that centers currently open will continue to operate.

We expect to continue to add new child care centers to our footprint in 2021, but the timing of the openings and enrollment ramp may be impacted by these same factors.

Additionally, as we continue to analyze the current environment, we may decide not to re-open select centers in locations where demand and economic trends have shifted.

While we have experienced increased demand for certain back-up care service offerings during the pandemic, such as in-home care and self-sourced reimbursed care, and have continued to launch back-up and educational advisory services to new clients throughout the pandemic, these conditions and trends may not continue in subsequent periods.

Given these factors, we expect the effects of COVID-19 to our business to continue to adversely impact our results of operations in 2021.

Beyond these immediate and near term impacts of the pandemic, general economic conditions, changes in workforce demographics and the business climate in which individual clients operate remain some of the largest variables in terms of our future performance.

These variables impact client capital and operating spending budgets, industry specific sales leads and the overall sales cycle, enrollment levels, as well as labor markets and wage rates as competition for human capital fluctuates.

Our ability to fully return to the operating income levels at which we operated prior to COVID-19, and to continue to increase operating income in the future will depend upon our ability to regain and sustain the following characteristics of our business and our strategic growth priorities:

Since March 2020, our global operations have been significantly impacted by the ongoing COVID-19 pandemic and the measures undertaken to prevent its spread.

During the early stages of the pandemic, most of our child care centers were temporarily closed.

We responded by focusing on health and safety, supporting clients and their essential frontline workers and pivoting to expand back-up care solutions for clients and employees to meet the surge in need and demand.

While nearly all of our centers have subsequently re-opened, we continue to be impacted by the ongoing effects of COVID-19, including the resurgence of infections and variants of the virus, which impacted enrollment growth, as well as the challenges of managing precautionary and preventative measures such as vaccination and mask mandates, virus exposures affecting our staff and families who attend our centers, and disrupted staff availability.

We have and will continue to monitor and respond to the changing conditions, challenges and disruptions resulting from the COVID-19 pandemic, including labor constraints affecting the early education and child care industry, as well as the changing needs of clients, families and children.

We remain focused on our strategic priorities to deliver high quality education and care services, connect across our service lines, extend our impact on new customers and clients, and preserve our strong culture.

Delays in client and business return-to-office, changing workplace trends, and increased competition for labor, particularly for teaching staff, may temporarily slow our overall recovery and impact enrollment.

It remains difficult to predict the full impact of the pandemic, but we remain committed to families, clients and our employees.

In 2022, we continue to focus on growing enrollment in our centers and expanding the delivery of back-up use across our network of providers.

We remain confident in our business model, the strength and breadth of our client partnerships, the strength of our balance sheet and liquidity position, and our ability to continue to respond to changing market conditions.

However, the broad effects of COVID-19, its duration and the scope of ongoing and related disruptions cannot be predicted and are affected by many interdependent variables and decisions by government authorities and our client partners, as well as demand, economic, workforce and labor market trends, the availability, adoption and effectiveness of vaccines among the public, teachers and young children, and developments in the persistence and treatment of COVID-19.

Our ability to fully return to the operating income levels at which we operated prior to COVID-19, and to continue to increase operating income in the future will depend upon our ability to continue to regain and sustain the following characteristics of our business and our strategic growth priorities:

• maintenance and incremental growth of enrollment in our mature and ramping centers, and cost management in response to changes in enrollment in our centers,

• effective pricing strategies, including annual tuition increases that correlate with expected annual increases in personnel costs, including wages and benefits,

• effective pricing strategies, including annual tuition increases that correlate with expected annual increases in personnel costs, including wages and benefits, and additional pricing actions to accommodate higher operating costs and the impact of persistent inflation,

• additional growth in expanded service offerings and cross-selling of services to clients,

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• successful management and improvement of underperforming centers.

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Results of Operations

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Income from operations 129,018 7.4 % 53,334 3.5 % 267,819 13.0 %

Loss on extinguishment of debt (2,571) (0.2) % — — % — — %

Interest expense — net (36,099) (2.1) % (37,682) (2.5) % (45,154) (2.2) %

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(1) Adjusted EBITDA, adjusted income from operations and adjusted net income are non-GAAP financial measures and are not determined in accordance with accounting principles generally accepted in the United States (“GAAP”).

Refer to “Non-GAAP Financial Measures and Reconciliation” below for a reconciliation of these non-GAAP financial measures to their respective measures determined under GAAP and for information regarding our use of non-GAAP measures.

Refer to “Non-GAAP Financial Measures and Reconciliation” below for a reconciliation of these non-GAAP financial measures to their respective measures determined under GAAP.

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Revenue decreased $546.9 million, or 27%, to $1.5 billion for the year ended December 31, 2020 from $2.1 billion for the prior year.

Revenue increased by $240.2 million, or 16%, to $1.8 billion for the year ended December 31, 2021 from $1.5 billion for the prior year.

The following table summarizes the revenue and percentage of total revenue for each of our segments for the years ended December 31, 2021 and 2020:

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Educational advisory and other services 106,996 6.1 % 94,533 6.2 % 12,463 13.2 %

Revenue $ 1,515,093 100.0 % $ 2,062,017 100.0 % $ (546,924) (26.5) %

Total revenue $ 1,755,307 100.0 % $ 1,515,093 100.0 % $ 240,214 15.9 %

Revenue generated by the full service center-based child care segment for the year ended December 31, 2021 increased by $264.9 million, or 26%, when compared to the prior year.

Revenue growth in this segment was attributable to enrollment increases in our open centers and the re-opening of our temporarily closed centers.

Tuition revenue increased by $296.3 million, or 35%, when compared to the prior year, on a 28% increase in enrollment.

While enrollment in our centers continues to improve, our centers are operating below pre-COVID-19 enrollment levels as the ongoing disruption of the pandemic and labor market challenges have slowed the recovery.

We expect continued revenue improvement throughout 2022.

Higher foreign currency exchange rates for our United Kingdom and Netherlands operations also contributed to our revenue growth, which increased 2021 tuition revenue by approximately 2%, or $16.7 million.

Management fees and operating subsidies from employer sponsors decreased $31.4 million, or 17%, due to lower operating subsidies required to support center operations as a result of the increase in enrollment and the associated tuition revenue, and due to the funding received from government support programs that reduced certain operating costs, which impacted the related operating subsidies.

Revenue generated by back-up care services in the year ended December 31, 2021 decreased by $37.2 million, or 10%, when compared to the prior year.

While we had gains from expanded sales to new clients, increased utilization from existing clients, and increases in traditional in-center and in-home use in 2021, back-up care revenue decreased compared to the prior year as 2020 benefited from significant demand for back-up care services (primarily for self-sourced reimbursed care) during the early stages of the pandemic when other care alternatives were not available.

We expect traditional in-center and in-home use to continue to improve throughout 2022.

An acquisition completed in 2021 contributed $10.3 million to this segment during the year.

Revenue generated by educational advisory and other services in the year ended December 31, 2021 increased by $12.5 million, or 13%, when compared to the prior year.

Revenue growth in this segment was primarily attributable to contributions from sales to new clients and increased utilization from existing clients.

An acquisition completed in 2020 contributed $6.9 million to the growth of this segment in 2021.

Cost of Services.

Cost of services increased $129.8 million, or 11%, to $1.3 billion for the year ended December 31, 2021 from $1.2 billion for the prior year.

Cost of services in the full service center-based child care segment increased by $99.6 million, or 10%, to $1.1 billion in the year ended December 31, 2021, when compared to the prior year.

The increase in cost of services is primarily associated with the enrollment increase in our centers and the re-opening of our temporarily closed centers.

Funding from government support programs reduced certain payroll and other operating expenses in 2021 by a total of $50.9 million, partially offset by impairment costs of $10.6 million related to long-lived assets.

Cost of services in 2020 included a reduction in certain payroll and operating expenses of $83.5 million associated with funding from government support programs, partially offset by impairment costs of $26.2 million related to long-lived assets and center closure costs of $6.6 million associated with the permanent closure of certain centers, including related severance and facilities costs.

Cost of services in the back-up care segment increased by $24.9 million, or 17%, to $170.0 million in the year ended December 31, 2021, when compared to the prior year.

Cost of services in 2020 included impairment costs of $2.1 million related to an equity investment.

After taking these charges into account, cost of services increased by $27.0 million, or 19%, in the year ended December 31, 2021, primarily associated with the effects of a change in the revenue mix and the return to higher levels of traditional in-center and in-home care in 2021 compared to more significant self-sourced reimbursed care in the prior year.

Included in cost of services for 2021 were increased care provider fees generated by the increase in utilization levels of traditional in-center and in-home care over the prior year, and continued investment in personnel, marketing and technology to support our customer user experience and service delivery.

Cost of services in the educational advisory and other services segment increased by $5.2 million, or 12%, to $49.6 million in 2021 due to costs related to delivering services to the expanding customer base and continued investments in personnel, marketing and technology.

Gross Profit.

Gross profit increased by $110.5 million, or 36%, to $415.0 million for the year ended December 31, 2021 from $304.5 million for the prior year.

Gross profit margin was 24% of revenue for the year ended December 31, 2021, an increase of approximately 4% compared to the year ended December 31, 2020.

The increase was primarily due to improved margins in the full service center-based child care segment from enrollment increases at open centers and the re-opening of temporarily closed centers, partially offset by reduced contributions from our back-up care services as a result of the shift in the service delivery mix back towards pre-COVID-19 levels and margins, with increasing utilization of traditional in-home and center-based care and a decrease in self-sourced reimbursed care.

Selling, General and Administrative Expenses (“SGA”).

SGA increased $37.2 million, or 16.9%, to $256.8 million for the year ended December 31, 2021 from $219.6 million for the year ended December 31, 2020, in order to support the business throughout the pandemic and as it re-ramps, and due to incremental overhead associated with acquired businesses.

SGA was 15% of revenue for the year ended December 31, 2021, consistent with 2020.

Amortization of Intangible Assets.

Amortization expense on intangible assets was $29.2 million for the year ended December 31, 2021, a decrease from $31.7 million in the prior year, due to the use of the accelerated method of amortization for certain intangibles and decreases from intangible assets becoming fully amortized during the period, partially offset by increases from the acquisitions completed in 2020 and 2021.

Refer to Note 6, Goodwill and Intangible Assets , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional details.

Income from Operations.

Income from operations increased by $75.7 million, or 142%, to $129.0 million for the year ended December 31, 2021 when compared to the prior year.

The following table summarizes income (loss) from operations and percentage of revenue for each of our segments for the years ended December 31, 2021 and 2020:

Years Ended December 31,

2021 2020 Change 2021 vs 2020

(In thousands, except percentages)

Full service center-based child care $ (8,431) (0.6) % $ (155,382) (15.1) % $ 146,951 94.6 %

Back-up care 115,173 32.8 % 182,938 47.1 % (67,765) (37.0) %

Educational advisory and other services 22,276 20.8 % 25,778 27.3 % (3,502) (13.6) %

Income from operations $ 129,018 7.4 % $ 53,334 3.5 % $ 75,684 141.9 %

The increase in income from operations was due to the following:

• Income from operations for the full service center-based child care segment increased $147.0 million, or 95%, for the year ended December 31, 2021, when compared to the same period in 2020 primarily due to increases in tuition revenue from enrollment growth in our open centers and the re-opening of temporarily closed centers.

• Income from operations for the back-up care segment decreased $67.8 million, or 37%, in the year ended December 31, 2021 when compared to the same period in 2020 as the service delivery mix continues to shift back towards pre-COVID-19 levels, with increasing utilization of traditional in-home and center-based care and a decrease in self-sourced reimbursed care compared to the prior year, which benefited from increased demand during the early stages of the pandemic.

• Income from operations for the educational advisory and other services segment decreased $3.5 million, or 14%, in the year ended December 31, 2021 when compared to the same period in 2020 due to investments in personnel, marketing and technology to support the growth of the segment.

Loss on Extinguishment of Debt.

A loss on the extinguishment of debt of $2.6 million was recorded in the year ended December 31, 2021, related to the unamortized original issue cost and deferred financing fees that were written off in connection with the November 2021 debt refinancing.

Refer to Note 11, Credit Arrangements and Debt Obligations , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional details.

Net Interest Expense.

Net interest expense decreased to $36.1 million for the year ended December 31, 2021 from $37.7 million for the year ended December 31, 2020, due to decreased borrowings under our revolving credit facility as well as decreases in the interest rates applicable to our debt.

Including the effects of the interest rate swap arrangements, which matured October 31, 2021, the weighted average interest rates for the term loans and revolving credit facility were 2.98% and 3.23% for the years ended December 31, 2021 and 2020, respectively.

Income Tax Expense.

We recorded an income tax expense of $19.9 million during the year ended December 31, 2021, at an effective income tax rate of 22.0%, compared to income tax benefit of $11.3 million, at an effective income tax rate of (72.5)%, during the prior year.

The difference between the effective income tax rates as compared to the statutory income tax rates was primarily due to the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted stock, which had a proportionately greater effect in 2020 due to the significantly lower income before income tax and greater amount of deductions received.

The excess tax benefits reduced income tax expense by $7.8 million in 2021, compared to $16.2 million in 2020, due to lower volume of equity transactions and lower excess tax benefits realized on each transaction.

Refer to Note 14, Stockholders’ Equity and Stock-based Compensation , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional details.

The effective income tax rate would have approximated 29% and 28% for the years ended December 31, 2021 and 2020, respectively, prior to the inclusion of the excess tax benefit from stock-based compensation and other discrete items.

Adjusted EBITDA and Adjusted Income from Operations.

Adjusted EBITDA and adjusted income from operations increased $47.7 million, or 21%, and $48.4 million, or 53%, respectively, for the year ended December 31, 2021 over the comparable period in 2020 primarily as a result of the increase in gross profit in the full service center-based child care segment, partially offset by reduced contributions from back-up care services.

Adjusted Net Income.

Adjusted net income increased $27.8 million, or 30%, for the year ended December 31, 2021 when compared to the same period in 2020 primarily due to the increase in income from operations, partially offset by a higher effective tax rate.

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

Revenue decreased $546.9 million, or 27%, to $1.5 billion for the year ended December 31, 2020 from $2.1 billion for the prior year.

The following table summarizes the revenue and percentage of total revenue for each of our segments for the years ended December 31, 2020 and 2019:

Years Ended December 31,

2020 2019 Change 2020 vs 2019

(In thousands, except percentages)

Full service center-based child care $ 1,032,266 68.2 % $ 1,684,006 81.6 % $ (651,740) (38.7) %

Tuition 849,405 82.3 % 1,551,433 92.1 % (702,028) (45.3) %

Management fees and operating subsidies 182,861 17.7 % 132,573 7.9 % 50,288 37.9 %

Back-up care 388,294 25.6 % 296,330 14.4 % 91,964 31.0 %

Educational advisory services 94,533 6.2 % 81,681 4.0 % 12,852 15.7 %

Total revenue $ 1,515,093 100.0 % $ 2,062,017 100.0 % $ (546,924) (26.5) %

Revenue generated by the full-service center-based child care segment for the year ended December 31, 2020 decreased by $651.7 million, or 39%, when compared to the prior year.

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Tuition revenue decreased by $702.0 million, or 45%, when compared to the prior year, on a 43% decrease in enrollment.

We had 910 child care and early education centers open as of December 31, 2020, of the 1,014 centers we operate, compared to 1,084 open child care and early education centers as of December 31, 2019.

We had 910 early education and child care centers open as of December 31, 2020, of the 1,014 centers we operated at that date, compared to 1,084 open early education and child care centers as of December 31, 2019.

During 2020, we opened 18 new centers and permanently closed 88 center locations where demand and economic trends had shifted.

While the large majority of our centers are now open to serve children and families, we remain in the re-ramp phase and enrollment remains well below pre-COVID-19 levels.

We expect the enrollment recovery to continue throughout 2021.

While the large majority of our centers were open to serve children and families as of December 31, 2020, we remained in the re-ramp phase and enrollment was well below pre-COVID-19 levels.

Management fees and operating subsidies from employer sponsors increased $50.3 million, or 38%, due to additional operating subsidies received to support center operations in connection with the decrease in tuition revenue from the temporary center closures.

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Revenue generated by back-up care services in the year ended December 31, 2020 increased by $92.0 million, or 31%, when compared to the prior year.

Revenue growth in this segment was primarily attributable to expanded sales to new clients and increased utilization by existing customers due to unprecedented demand for our back-up care services (in particular, for the use of self-sourced reimbursed care during the second quarter, which is recorded on a net basis) as clients and families pursued additional coverage and supports as a result of continued business and school closures.

Although self-sourced reimbursed care offered an important alternative to clients and families during the early stages of the pandemic, demand for back-up care started to shift toward more traditional in-center and in-home service delivery in the third and fourth quarters as more centers resumed operations, and as businesses and schools re-opened.

While traditional in-center and in-home use remains below pre-COVID-19 levels, we expect it to continue ramping through 2021.

Revenue generated by educational advisory and other services in the year ended December 31, 2020 increased by $12.9 million, or 16%, when compared to the prior year.

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Amortization of Intangible Assets.

Amortization expense on intangible assets was $31.7 million for the year ended December 31, 2020, a decrease from $33.6 million in the prior year, due to decreases from certain intangible assets becoming fully amortized during the period, partially offset by increases from the acquisitions completed in 2019 and 2020.

We do not expect significant changes in amortization expense in 2021.

Amortization expense on intangible assets was $31.7 million for the year ended December 31, 2020, a decrease from $33.6 million in the prior year, due to the use of the accelerated method of amortization for certain intangibles and decreases from intangible assets becoming fully amortized during the period, partially offset by increases from the acquisitions completed in 2019 and 2020.

Refer to Note 6, Goodwill and Intangible Assets , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional details.

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Income from Operations.

Income from operations decreased by $214.5 million, or 80%, to $53.3 million for the year ended December 31, 2020 when compared to the prior year.

The following table summarizes income from operations and percentage of revenue for each of our segments for the years ended December 31, 2020 and 2019:

The following table summarizes income (loss) from operations and percentage of revenue for each of our segments for the years ended December 31, 2020 and 2019:

Years Ended December 31,

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Back-up care 182,938 47.1 % 80,394 27.1 % 102,544 127.6 %

Educational advisory and other services 25,778 27.3 % 21,414 26.2 % 4,364 20.4 %

Educational advisory services 25,778 27.3 % 21,414 26.2 % 4,364 20.4 %

Income from operations $ 53,334 3.5 % $ 267,819 13.0 % $ (214,485) (80.1) %

The decrease in income from operations was due to the following:

• Income from operations for the full-service center-based child care segment decreased $321.4 million, or 194%, for the year ended December 31, 2020, when compared to the same period in 2019 due to reduced tuition revenue from temporary and permanent center closures and reduced enrollment in the centers that have re-opened, as well as related impairment charges on long-lived assets of $26.2 million and costs associated with the permanent closure of certain centers of $6.6 million, partially offset by contributions of $83.5 million from government support programs that reduced certain payroll and operating expenses.

• Income from operations for the back-up care segment increased $102.5 million to $182.9 million for the year ended December 31, 2020, or 128%, when compared to the same period in 2019 due to the expanding revenue base from increased sales and utilization of our back-up care services (in particular, for self-sourced reimbursed care during the second quarter) as clients and families pursued additional supports as a result of business and school closures, and reduced care provider fees associated with decreased utilization of traditional care options in relation to the prior year, partially offset by investments in technology to support our customer user experience and service delivery.

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Adjusted net income decreased $123.1 million, or 57%, for the year ended December 31, 2020 when compared to the same period in 2019 primarily due to the decrease in income from operations, partially offset by a lower effective tax rate.

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Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

Revenue increased $158.8 million, or 8%, to $2.1 billion for the year ended December 31, 2019 from $1.9 billion for the prior year.

The following table summarizes the revenue and percentage of total revenue for each of our segments for the years ended December 31, 2019 and 2018:

Years Ended December 31,

2019 2018 Change 2019 vs 2018

(In thousands, except percentages)

Full-service center-based child care $ 1,684,006 81.6 % $ 1,586,323 83.4 % $ 97,683 6.2 %

Tuition 1,551,433 92.1 % 1,457,299 91.9 % 94,134 6.5 %

Management fees and operating subsidies 132,573 7.9 % 129,024 8.1 % 3,549 2.8 %

Back-up care 296,330 14.4 % 245,498 12.9 % 50,832 20.7 %

Educational advisory services 81,681 4.0 % 71,361 3.7 % 10,320 14.5 %

Revenue $ 2,062,017 100.0 % $ 1,903,182 100.0 % $ 158,835 8.3 %

Revenue generated by the full-service center-based child care segment for the year ended December 31, 2019 increased by $97.7 million, or 6%, when compared to the prior year.

Tuition revenue increased by $94.1 million, or 7%, due to overall enrollment increases of approximately 4% and annual tuition rate increases which average 3% to 4%, partially offset by center closings.

The effect of lower foreign currency exchange rates for our United Kingdom and Netherlands operations reduced 2019 tuition revenue by approximately 1%, or $17.5 million.

Management fees and operating subsidies from employer sponsors increased $3.5 million, or 3%, primarily due to price increases.

Revenue generated by back-up care services in the year ended December 31, 2019 increased by $50.8 million, or 21%, when compared to the prior year.

Revenue growth in this segment is primarily attributable to increased utilization by existing customers and, to a lesser extent, sales to new clients.

In addition, a recent acquisition contributed $9.4 million to the growth in this segment in 2019.

Revenue generated by educational advisory services in the year ended December 31, 2019 increased by $10.3 million, or 15%, when compared to the prior year.

Revenue growth in this segment is primarily attributable to increased utilization by existing customers and, to a lesser extent, sales to new clients.

In addition, a recent acquisition contributed $2.1 million to the growth in this segment in 2019.

Cost of Services.

Cost of services increased $109.2 million, or 8%, to $1.5 billion for the year ended December 31, 2019 from $1.4 billion for the prior year.

Cost of services in the full-service center-based child care segment increased $78.0 million to $1.3 billion in the year ended December 31, 2019, or 6%, when compared to the prior year, which is generally consistent with revenue growth.

Personnel costs increased 6% as a result of the enrollment growth at new and existing centers, routine wage and benefit cost increases, and labor costs associated with centers added since December 31, 2018.

In addition, program supplies, materials, food and facilities costs, which typically represent the remaining approximately 30% of total cost of services for this segment, increased 6% in connection with the enrollment growth, certain technology investments in programs and services, and the incremental occupancy costs associated with centers added since December 31, 2018.

Cost of services in the back-up care segment increased $26.8 million to $169.3 million for the year ended December 31, 2019, or 19%, when compared to the prior year, which represents leverage of 2% on the revenue growth.

The increase is primarily due to personnel and care provider fees, which typically represent approximately 75% of total cost of services for this segment, associated with the increased utilization of services provided to the expanding customer base, as well as marketing and technology spending which supports our customer user experience, service delivery, and operating efficiency.

Cost of services in the educational advisory services segment increased by $4.3 million to $38.3 million for the year ended December 31, 2019, or 13%, when compared to the prior year, which is broadly consistent with revenue growth.

The increase is due to personnel and technology costs related to delivering services to the expanding customer base, as well as ongoing spending for systems to support the long-term growth of the segment.

Gross Profit.

Gross profit increased $49.7 million, or 11%, to $522.9 million for the year ended December 31, 2019 from $473.3 million for the prior year.

Gross profit margin was 25% of revenue for the year ended December 31, 2019, and increased approximately 1% compared to the year ended December 31, 2018.

The increase in gross profit is primarily due to contributions from increased enrollment in our new centers as well as mature and ramping P&L centers, effective operating cost management, and expanded back-up care and educational advisory services.

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Selling, General and Administrative Expenses.

SGA increased $19.9 million, or 10%, to $221.5 million for the year ended December 31, 2019 compared to $201.6 million for 2018.

SGA was 11% of revenue for the year ended December 31, 2019, which is consistent with the prior year.

SGA increased over the comparable 2018 period due to increases in personnel costs, including annual wage increases, and continued technology spending.

Amortization of Intangible Assets.

Amortization expense on intangible assets was $33.6 million for the year ended December 31, 2019, an increase from $32.6 million in the prior year, due to increases in amortization from the acquisitions completed in 2018 and 2019, partially offset by decreases from certain intangible assets becoming fully amortized during the period.

Income from Operations.

Income from operations increased by $28.7 million, or 12%, to $267.8 million for the year ended December 31, 2019 when compared to the prior year.

The following table summarizes income from operations and percentage of revenue for each segment for the years ended December 31, 2019 and 2018:

Years Ended December 31,

2019 2018 Change 2019 vs 2018

(In thousands, except percentages)

Full-service center-based child care $ 166,011 9.9 % $ 152,006 9.6 % $ 14,005 9.2 %

Back-up care 80,394 27.1 % 68,462 27.9 % 11,932 17.4 %

Educational advisory services 21,414 26.2 % 18,627 26.1 % 2,787 15.0 %

Income from operations $ 267,819 13.0 % $ 239,095 12.6 % $ 28,724 12.0 %

The increase in income from operations was due to the following:

• Income from operations for the full-service center-based child care segment increased $14.0 million to $166.0 million for the year ended December 31, 2019, or 9%, when compared to the same period in 2018.

Results for the year ended December 31, 2018 included $1.3 million of transaction costs associated with an amendment to our credit agreement and a secondary offering.

After taking these charges into account, income from operations increased $12.7 million in 2019, or 8%, over the prior year primarily due to tuition increases and enrollment gains over the prior year, contributions from new centers that have been added since December 31, 2018, and effective cost management, partially offset by the costs incurred during the pre-opening and ramp-up of certain new lease/consortium centers opened during 2018 and 2019, and the incremental costs associated with technology investments in our centers.

In addition, lower foreign currency exchange rates for our operations in the United Kingdom and Netherlands operations decreased income from operations in the full-service segment by approximately 1%, or $1.5 million, for the year ended December 31, 2019.

• Income from operations for the back-up care segment increased $11.9 million to $80.4 million for the year ended December 31, 2019, or 17%, when compared to the same period in 2018 due to the expanding revenue base partially offset by investments in technology to support our customer user experience, service delivery and operating efficiency, and increased care provider fees associated with the increased utilization of back-up services.

• Income from operations for the educational advisory services segment increased $2.8 million to $21.4 million for the year ended December 31, 2019, or 15%, when compared to the same period in 2018 due to contributions from the expanding revenue base.

Net Interest Expense.

Net interest expense decreased to $45.2 million for the year ended December 31, 2019 from $47.5 million for the year ended December 31, 2018, due to decreased borrowings on our revolving credit facility.

Including the effects of the interest rate swap arrangements, the weighted average interest rate for the term loans and revolving credit facility was 3.89% for the year ended December 31, 2019, which is consistent with the prior year.

Income Tax Expense.

We recorded income tax expense of $42.3 million during the year ended December 31, 2019, at an effective income tax rate of 19%, compared to income tax expense of $33.6 million, at an effective income tax rate of 18%, during the prior year.

The difference between the effective income tax rates as compared to the statutory income tax rates is primarily due to the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted stock.

The excess tax benefits reduced income tax expense by $13.9 million in 2019, compared to $12.1 million in the same 2018 period, due to higher volume of equity transactions.

The effective income tax rate would have approximated 25% and 26% for the years ended December 31, 2019 and 2018, respectively, prior to the inclusion of the excess tax benefit from stock-based compensation.

Adjusted EBITDA and Adjusted Income from Operations.

Adjusted EBITDA and adjusted income from operations increased $37.8 million, or 11%, and $27.4 million, or 11%, respectively, for the year ended December 31, 2019 over the comparable period in 2018 primarily as a result of the increase in gross profit due to additional contributions from full-service centers, including the impact of centers added since December 31, 2018, as well as the growth in back-up care and educational advisory services.

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Adjusted Net Income.

Adjusted net income increased $27.1 million, or 14%, for the year ended December 31, 2019 when compared to the same period in 2018 primarily due to the expanded income from operations.

Non-GAAP Financial Measures and Reconciliation

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COVID-19 related costs (b)

10,582 34,918 —

Stock-based compensation expense (c)

23,060 20,996 17,283

Loss on extinguishment of debt 2,571 — —

Other costs (d)

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COVID-19 related costs (b)

10,582 34,918 —

Other costs (d)

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COVID-19 related costs (b)

10,582 34,918 —

Stock-based compensation expense (c)

23,060 20,996 17,283

Loss on extinguishment of debt 2,571 — —

Other costs (d)

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Diluted adjusted earnings per common share $ 1.99 $ 1.55 $ 3.67

(a) Represents amortization of intangible assets, including amortization expense of $20.0 million associated with intangible assets recorded in connection with our going private transaction in May 2008.

(b) COVID-19 related costs represent impairment costs for investments and long-lived assets as a result of center closures and decreases in the fair values for certain centers that are open or temporarily closed, and other costs incurred as a result of the impact of COVID-19 on our operations and related management actions as discussed above.

(a) Represents amortization of intangible assets, including annual amortization expense of approximately $20.0 million associated with intangible assets recorded in connection with our going private transaction in May 2008.

For the year ended December 31, 2021, impairment costs totaled $10.6 million related to the full service center-based child care segment.

For the year ended December 31, 2020, impairment costs totaled $28.3 million, of which $26.2 million related to the full service center-based child care segment and $2.1 million related to the back-up care segment.

Other COVID-19 related costs totaled $6.6 million and were primarily associated with the closure of centers, including severance and facilities costs.

Other COVID-19 related costs totaled $6.6 million for the year ended December 31, 2020 and were primarily associated with the closure of centers, including severance and facilities costs.

(c) Represents non-cash stock-based compensation expense in accordance with Accounting Standards Codification Topic 718, Compensation-Stock Compensation.

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(d) Other costs in the year ended December 31, 2020 relate to occupancy costs incurred for our new corporate headquarters during the construction period, which represent duplicative office costs in 2020 while we also continue to carry the costs for our existing corporate headquarters.

Other costs in the years ended December 31, 2019 and 2018 represent transaction costs incurred in connection with completed acquisitions, the March 2018 secondary offering, and the May 2018 amendment to the credit agreement.

(d) Other costs in the year ended December 31, 2021 represent transaction costs incurred in connection with completed acquisitions.

Other costs in the year ended December 31, 2020 relate to occupancy costs incurred for our new corporate headquarters during the construction period, which represented duplicative office costs in 2020 while we also continued to carry the costs for our previous corporate headquarters.

Other costs in the year ended December 31, 2019 represent transaction costs incurred in connection with completed acquisitions.

(e) Represents the excess of lease expense over cash lease expense (for periods prior to 2020).

(f) Represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 12% for the year ended December 31, 2020, and approximately 21% for both years ended December 31, 2019, and 2018.

The effective tax rates represent a tax rate of approximately 28% for 2020 and approximately 26% for both 2019 and 2018 applied to the adjusted income before income tax, less the effect of excess tax benefits related to equity transactions.

(f) Represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 22%, 12% and 21% for the years ended December 31, 2021, 2020 and 2019, respectively.

The effective tax rates represent a tax rate of approximately 28% for both 2021 and 2020 and approximately 26% for 2019, applied to the adjusted income before income tax, less the effect of excess tax benefits related to equity transactions.

Adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share (collectively referred to as the “non-GAAP financial measures”) are not presentations made in accordance with GAAP, and the use of the terms adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures.

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We present the non-GAAP financial measures as supplemental performance measures because we believe they facilitate a comparative assessment of our operating performance relative to our performance based on our results under GAAP, while isolating the effects of some items that vary from period to period.

Specifically, adjusted EBITDA allows for an assessment of our operating performance and of our ability to service or incur indebtedness without the effect of non-cash charges, such as depreciation, amortization, the excess of lease expense over cash lease expense (prior to fiscal 2020), stock-based compensation expense, impairment costs, other costs incurred due to the impact of COVID-19 including center closing costs, transaction costs and other nonrecurring costs, such as expenses related to secondary offerings, debt financing transactions, dispositions and acquisitions, and duplicative corporate office costs.

Specifically, adjusted EBITDA allows for an assessment of our operating performance and of our ability to service or incur indebtedness without the effect of non-cash charges, such as depreciation, amortization, the excess of lease expense over cash lease expense (prior to fiscal 2020), stock-based compensation expense, impairment costs and other costs incurred due to the impact of COVID-19, including center closing costs, transaction costs and other nonrecurring costs, such as expenses related to acquisitions, and duplicative corporate office costs.

In addition, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share allow us to assess our performance without the impact of the specifically identified items that we believe do not directly reflect our core operations.

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Liquidity and Capital Resources

The COVID-19 pandemic has substantially disrupted our global operations.

The broad effects of COVID-19, its duration and full impact to our operations are difficult to predict, due in large part to the interdependence of our operations with the operating decisions and requirements of our client partners and government authorities, as well as demand, economic trends, the adoption and effectiveness of a vaccine, and developments in the persistence and treatment of COVID-19.

We have taken a number of actions described below to increase our liquidity and strengthen our financial position as we navigate these uncertain times.

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Our primary cash requirements are for the ongoing operations of our existing child care centers, back-up care, educational advisory and other services, and debt financing obligations.

Our primary cash requirements are for the ongoing operations of our existing early education and child care centers, back-up care, educational advisory and other services, the addition of new centers through development or acquisitions, and debt financing obligations.

Our primary sources of liquidity are our existing cash, cash flows from operations, and borrowings available under our revolving credit facility.

We had $261.0 million in cash ($265.3 million including restricted cash) at December 31, 2021, of which $25.8 million was held in foreign jurisdictions, compared to $384.3 million in cash ($388.5 million including restricted cash) at December 31, 2020, of which $43.6 million was held in foreign jurisdictions.

Operations outside of North America accounted for 23% of our consolidated revenue for each of the years ended December 31, 2020 and 2019.

Operations outside of North America accounted for 26% and 23% of our consolidated revenue for the years ended December 31, 2021 and 2020, respectively.

The net impact on our liquidity from changes in foreign currency exchange rates was not material for the years ended December 31, 2021 and 2020.

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The Company received net proceeds from the offering of $249.8 million, which strengthened our liquidity and financial position, and increased our cash and cash equivalents.

Our revolving credit facility is part of our senior secured credit facilities, which consist of a secured term loan facility and a $400 million revolving credit facility.

Our revolving credit facility is part of our senior secured credit facilities, which consist of secured term loans and a $400 million revolving credit facility.

There were no borrowings outstanding on our revolving credit facility at December 31, 2021 and 2020.

In April and May 2020, we amended our existing senior credit facilities to, among other changes, increase the borrowing capacity of our revolving credit from $225 million to $400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants.

Refer to Note 11, Credit Arrangements and Debt Obligations , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further discussion of our credit facilities.

We had working capital of $93.4 million and a working capital deficit of $254.4 million at December 31, 2020 and 2019, respectively.

Our working capital improvement is related to the capital raised from the issuance and sale of stock in April 2020.

We typically have a working capital deficit that has primarily arisen from using cash generated from operations to make long-term investments in fixed assets and acquisitions, and from share repurchases.

We anticipate that our cash flows from operating activities will continue to be adversely impacted during the temporary closure of our centers and while our re-opened centers re-ramp enrollment;

this will be supplemented with our existing cash, as well as borrowings available under our revolving credit facility to fund operations.

As we focus on the re-enrollment and ramping of re-opened centers, as well as re-opening our remaining temporarily closed centers, we will continue to manage our discretionary operating and capital spending and prioritize investments that support current operations and strategic opportunities, as well as the principal and interest payments on our debt.

We have participated in certain government support programs, including certain tax deferrals and tax credits allowed pursuant to the CARES Act in the United States, as well as certain tax deferrals, tax credits, and employee wage support in the United Kingdom, and may continue to do so in the future.

During the year ended December 31, 2020, $83.5 million was recorded as a reduction to cost of services in relation to these benefits, of which $8.4 million was recorded in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2020 for amounts receivable from government support programs.

Additionally, the Company had payroll tax deferrals totaling $20.4 million as of December 31, 2020, of which $10.2 million was included in accounts payable and accrued expenses and $10.2 million was included in other long-term liabilities.

On November 23, 2021, the Company amended its existing senior secured credit facilities to refinance the existing secured term loan facility with a new term loan B facility of $600 million and a new term loan A facility of $400 million.

Proceeds of $1 billion from the new term loans, together with cash on hand, were used to repay $1.03 billion in outstanding term loans and related fees and expenses.

Refer to Note 11, Credit Arrangements and Debt Obligations , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information on our senior secured credit facilities.

We had a working capital deficit of $81.9 million at December 31, 2021 and working capital of $93.4 million at December 31, 2020.

Our working capital deficit in 2021 has primarily arisen from using cash to make long-term investments in fixed assets and acquisitions, and from share repurchases.

We anticipate that our cash flows from operating activities will continue to be impacted while our center operating performance ramps enrollment.

During this re-enrollment phase, cash flows from operating activities will be supported by our existing cash, as well as borrowings available under our revolving credit facility, as needed.

As we focus on the enrollment and ramping of centers, we continue to prioritize investments that support current operations and strategic opportunities, as well as the principal and interest payments on our debt.

We have participated in certain government support programs, including certain grants, tax deferrals and tax credits allowed pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Consolidated Appropriations Act, 2021 (“CAA”), and the American Rescue Plan Act of 2021 (“ARPA”) in the United States, as well as certain tax deferrals, tax credits, and employee wage support in the United Kingdom, and may continue to do so in the future.

During the years ended December 31, 2021 and 2020, $50.9 million and $83.5 million, respectively, was recorded as a reduction to cost of services in relation to these benefits, of which $16.0 million and $14.6 million, respectively, reduced the operating subsidies paid by employers for the related child care centers.

As of December 31, 2021 and 2020, $3.3 million and $8.4 million, respectively, was recorded in prepaid expenses and other current assets on the consolidated balance sheet for amounts due from government support programs, and as of December 31, 2021, $3.9 million was recorded to other current liabilities related to government support received related to future periods.

As of December 31, 2021, payroll tax deferrals of $7.0 million were recorded in accounts payable and accrued expenses on the consolidated balance sheet and as of December 31, 2020, payroll tax deferrals were $20.4 million, of which $10.2 million was included in accounts payable and accrued expenses and $10.2 million was included in other long-term liabilities.

There is no assurance that these government support programs will continue in the future at current levels, or at all.

In response to the broad effects of COVID-19, we have re-negotiated certain payment terms with lessors to mitigate the impact on our financial position and operations.

As of December 31, 2020 we had $7.7 million in lease payment deferrals that are now payable over the next year.

The board of directors authorized a share repurchase program of up to $300 million of our outstanding common stock, effective June 12, 2018.

During the year ended December 31, 2020, and prior to the impact of the pandemic on our operations, we repurchased 0.2 million shares for $32.2 million, and at December 31, 2020, $194.9 million remained available under the repurchase program.

As of December 31, 2021, we had $791.3 million in lease liabilities, $87.3 million of which is short term in nature.

Refer to Note 4, Leases , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information on leases, including the maturity of the contractual obligations related to our lease liabilities.

The board of directors authorized a share repurchase program of up to $400 million of our outstanding common stock, effective December 16, 2021.

The share repurchase program has no expiration date and replaced the prior June 2018 authorization, of which $0.2 million remained available thereunder.

During the year ended December 31, 2021, we repurchased 1.6 million shares for $214.1 million, and at December 31, 2021, $380.6 million remained available under the repurchase program.

During the year ended December 31, 2020, we repurchased 0.2 million shares for $32.2 million.

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We believe that funds provided by operations, our existing cash balances and borrowings available under our revolving credit facility will be adequate to fund all obligations and liquidity requirements for at least the next twelve months.

However, prolonged disruptions to our operations, including as a result of required school, child care and business closures and stay-at-home government mandates in response to the COVID-19 pandemic, may require financing beyond our existing cash and borrowing capacity, and it may be necessary for us to obtain additional debt or equity financing.

However, continued disruption from COVID-19 or if we were to undertake any significant acquisitions or make investments in the purchase of facilities for new or existing centers, we could require financing beyond our existing cash and borrowing capacity, and it could be necessary for us to obtain additional debt or equity financing.

We may not be able to obtain such financing on reasonable terms, or at all.

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Cash Flows Years Ended December 31,

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Cash Provided by Operating Activities

Cash provided by operating activities was $227.3 million for the year ended December 31, 2021, compared to $209.6 million for 2020.

The increase in cash provided by operating activities primarily resulted from the $43.5 million increase in net income from the prior year, and increases associated with growth in the full service center-based child care segment and the related increase in tuition fees collected in advance as children re-enroll in our centers, offset by changes in working capital arising from the timing of billings and payments when compared to the prior year.

Cash provided by operating activities was $209.6 million for the year ended December 31, 2020, compared to $330.4 million for the same period in 2019.

The decrease in cash provided by operating activities primarily resulted from the $153.4 million decrease in net income from the prior year, and from changes in working capital arising from the timing of billings and payments when compared to the prior year, including increases in accounts receivable associated with slower collections, and an increase in other current assets for amounts receivable from government support programs which were not present in the prior year.

The decrease in cash provided by operating activities primarily resulted from the $153.4 million decrease in net income from the prior year, and from changes in working capital arising from the timing of billings and payments when compared to 2019, including increases in accounts receivable associated with slower collections, and an increase in other current assets for amounts receivable from government support programs which were not present in 2019.

The decrease in cash provided by operating activities was partially offset by client deposits, and the effects of payroll tax and rent payment deferrals during the period.

Cash provided by operating activities was $330.4 million for the year ended December 31, 2019, compared to $294.7 million for the same period in 2018.

The increase in cash provided by operating activities primarily resulted from the $22.4 million increase in net income from the prior year, and from changes in working capital arising from the timing of billings and payments when compared to 2018.

Cash Used in Investing Activities

Cash used in investing activities was $117.4 million for the year ended December 31, 2021 compared to $83.8 million for the prior year, and was related to fixed asset additions, acquisitions, and other investments.

The increase in cash used in investing activities in 2021 was primarily related to acquisitions, partially offset by lower fixed asset additions.

During the year ended December 31, 2021, we invested $53.9 million in five acquisitions, and to a lesser extent, for settlements of prior year acquisitions, compared to $8.3 million used for three acquisitions in 2020.

During the year ended December 31, 2021, we invested $57.7 million, net of proceeds from the sale of fixed assets, in fixed asset purchases for new child care centers, and maintenance and refurbishments in our existing centers, compared to a net investment of $72.8 million during the same period in 2020.

Cash used in investing activities was $83.8 million for the year ended December 31, 2020 compared to $189.1 million for the same period in 2019, and was related to fixed asset additions, acquisitions, and other investments.

The decrease in cash used in investing activities was primarily related to a lower volume of fixed asset additions and acquisitions in 2020 as we prioritized investments to the most critical operating areas in response to the COVID-19 pandemic.

During the year ended December 31, 2020, we invested $72.8 million, net of proceeds from the sale of fixed assets, in fixed asset purchases for new child care centers, and maintenance and refurbishments in our existing centers, compared to a net investment of $104.8 million during the same period in the prior year.

We used $8.3 million for three acquisitions in the year ended December 31, 2020, compared to $53.4 million used for eight acquisitions in the prior year.

Additionally, during the year ended December 31, 2020, we invested $2.7 million in debt securities, net of proceeds from maturities, which were purchased by our wholly-owned captive insurance company using restricted cash, compared to $25.0 million in net investments in the prior year.

In 2019, we also invested $5.9 million for a 20% interest in a provider of full-service center-based child care and back-up care services in Germany.

Cash used in investing activities was $189.1 million for the year ended December 31, 2019 compared to $158.5 million for the same period in 2018 and was related to fixed asset additions, acquisitions, and other investments.

The increase in cash used in investing activities was primarily related to an increase in fixed asset purchases for new child care centers, maintenance and refurbishments in our existing centers, and continued investments in technology, equipment and furnishings.

During the year ended December 31, 2019, we used $53.4 million for eight acquisitions, compared to $67.1 million used for seven acquisitions during the year ended December 31, 2018.

Additionally, during the year ended December 31, 2019, we invested $25.0 million in debt securities and other investments, $24.7 million of which were net purchases by our wholly-owned captive insurance company using restricted cash, and invested $5.9 million for a 20% interest in a provider of full-service center-based child care and back-up care services in Germany.

During the year ended December 31, 2020, we invested $8.3 million for three acquisitions, and to a lesser extent, for settlements of prior year acquisitions, compared to $53.4 million used for eight acquisitions in 2019.

Additionally, during the year ended December 31, 2019, we invested $25.0 million in debt securities and other investments, $24.7 million of which were net purchases by our wholly-owned captive insurance company using restricted cash, and invested $5.9 million for a 20% interest in a provider of full service center-based child care and back-up care services in Germany, compared to net investments in debt securities of $2.7 million in 2020.

We estimate that in 2022 we will continue to spend on fixed asset additions related to new child care centers, maintenance and refurbishments in our existing centers, and continued investments in technology and equipment.

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Cash Provided by (Used in) Financing Activities

Cash provided by financing activities was $229.0 million for the year ended December 31, 2020 compared to cash used of $149.1 million in 2019.

Cash provided by financing activities in 2020 was primarily related to proceeds raised from the issuance and sale of common stock in a private transaction of $249.8 million, and proceeds from the exercise of stock options and the issuance and sale of restricted stock of $38.8 million, partially offset by cash used for share repurchases of $32.7 million, taxes paid related to the net share settlement of stock awards totaling $12.2 million, and payments of debt principal of $10.8 million.

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Cash used in financing activities in 2019 was primarily for repayments of $117.9 million, net of borrowings, on the revolving credit facility, share repurchases of $31.6 million, taxes paid related to the net share settlement of stock awards of $11.3 million, and payments of debt principal of $10.8 million.

These uses of cash were partially offset by proceeds from the exercise of stock options and the issuance and sale of restricted stock of $26.6 million.

Cash used in financing activities in 2018 consisted primarily of share repurchases of $126.7 million, payments of debt principal of $10.8 million, repayments of $8.9 million, net of borrowings, on the revolving credit facility, and taxes paid related to the net share settlement of stock awards of $7.5 million.

These uses of cash were partially offset by proceeds from the exercise of stock options and the issuance of restricted stock of $22.9 million.

Our senior secured credit facilities consist of a secured term loan facility and a multi-currency revolving credit facility.

The term loans mature on November 7, 2023 and require quarterly principal payments of $2.7 million, with the remaining principal balance due on November 7, 2023.

Outstanding term loan borrowings were as follows:

Cash used in financing activities was $230.0 million for the year ended December 31, 2021 compared to cash provided by financing activities of $229.0 million in 2020.

The change in financing activities was primarily related to an increase in share repurchases in 2021, which were $213.8 million in the year ended December 31, 2021 compared to $32.7 million in 2020, and capital raised in the year ended December 31, 2020 of $249.8 million from the issuance and sale of common stock.

Cash used in financing activities was $149.1 million in the year ended December 31, 2019 and consisted primarily of repayments on the revolving credit facility of $117.9 million, net of borrowings.

Our senior secured credit facilities consist of a term loan B facility, term loan A facility, and a $400 million multi-currency revolving credit facility.

Long term debt obligations were as follows:

(In thousands)

Term loans $ 1,034,688 $ 1,045,438

Term loan B $ 600,000 $ 1,034,688

Term loan A 400,000 —

Deferred financing costs and original issue discount (7,604) (3,801)

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Long-term debt $ 976,396 $ 1,020,137

On November 23, 2021, the Company amended its existing senior secured credit facilities to refinance the existing secured term loan facility with a new term loan B facility (“term loan B”) of $600 million and a new term loan A facility (“term loan A”) of $400 million, collectively the “term loan facilities” or “term loans.” Proceeds of $1 billion from the new term loans, together with cash on hand, were used to repay $1.03 billion in outstanding term loans and related fees and expenses.

The terms of the existing $400 million multi-currency revolving credit facility (“revolving credit facility”) were not modified in the November 2021 amendment.

The seven year term loan B matures on November 23, 2028 and requires quarterly principal payments equal to 1% per annum of the original aggregate principal amount of the term loan B, with the remaining principal balance due at maturity.

The five year term loan A matures on November 23, 2026 and requires quarterly principal payments equal to 2.5% per annum of the original aggregate principal amount of the term loan A in each of the first three years, 5% in the fourth year, and 7.5% in the fifth year.

The remaining principal balance is due at maturity.

On May 26, 2021, the Company amended its existing senior secured credit facilities to, among other changes, extend the revolving credit facility maturity date from July 31, 2022 to May 26, 2026, and reduce the interest rates applicable to borrowings outstanding on the revolving credit facility.

There were no borrowings outstanding on the revolving credit facility at both December 31, 2021 and 2020, with $400 million available for borrowing.

In April and May 2020, we amended our existing senior credit facilities to, among other things, increase the borrowing capacity of our revolving credit facility from $225 million to $400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants.

The revolving credit facility matures on July 31, 2022.

There were no borrowings outstanding on the revolving credit facility at both December 31, 2020 and 2019, with the full line available for borrowings.

Borrowings under the credit agreement are subject to variable interest.

We mitigate our interest rate exposure with variable-to-fixed interest rate swap agreements with an underlying fixed notional value of $500 million.

These swap agreements, designated and accounted for as cash flow hedges from inception, are scheduled to mature on October 31, 2021.

The weighted average interest rate for the term loans was 3.23%, and 3.89% for the years ended December 31, 2020 and 2019, respectively, including the impact of the interest rate swap agreements.

Based on the interest rates in effect as of December 31, 2021, interest payments on the outstanding principal balance of the term loans, including commitment fees on the revolving credit facility, are estimated at $23 million annually.

However, actual interest paid may be different from these estimates based on changes in the market.

We mitigate our interest rate exposure with interest rate cap agreements.

During December 2021, the Company entered into interest rate cap agreements with a total notional value of $900 million, designated and accounted for as cash flow hedges from inception.

Interest rate cap agreements for $600 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, 2025, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 2.5%.

Interest rate cap agreements for $300 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, 2026, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 3.0%.

In June 2020, the Company entered into interest rate cap agreements with a total notional value of $800 million.

These interest rate cap agreements, designated and accounted for as cash flow hedges from inception, provide us with interest rate protection in the event the one-month LIBOR rate increases above 1%.

Interest rate cap agreements for $300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $500 million notional amount have a forward starting effective date of October 29, 2021, which coincides with the maturity of our existing interest rate swap agreements, and expire on October 31, 2023.

As of December 31, 2020, the fair value of the interest rate cap agreements was an asset of $0.3 million.

All obligations under the senior secured credit facilities are secured by substantially all the assets of our U.S.

subsidiaries.

The senior secured credit facilities contain a number of covenants that, among other things and subject to certain exceptions, may restrict the ability of Bright Horizons Family Solutions LLC, our wholly-owned subsidiary, and its restricted subsidiaries, to:

incur certain liens;

make investments, loans, advances and acquisitions;

incur additional indebtedness or guarantees;

pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness;

engage in transactions with affiliates;

sell assets, including capital stock of our subsidiaries;

alter the business conducted;

enter into agreements restricting our subsidiaries’ ability to pay dividends;

and consolidate or merge.

In addition, the credit agreement governing the senior secured credit facilities requires Bright Horizons Capital Corp, our direct subsidiary, to be a passive holding company, subject to certain exceptions.

Effective as of April 24, 2020, the revolving credit facility requires Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries to comply with a maximum first lien gross leverage ratio for four fiscal quarters, followed by a maximum first lien net leverage ratio in the quarters thereafter.

These interest rate cap agreements, designated and accounted for as cash flow hedges, provide us with interest rate protection in the event the one-month LIBOR rate increases above 1%.

We entered into variable-to-fixed interest rate swap agreements on $500 million notional amount of the outstanding term loan borrowings.

These swap agreements, designated and accounted for as cash flow hedges, matured on October 31, 2021.

The weighted average interest rate for the term loans was 2.98%, and 3.23% for the years ended December 31, 2021 and 2020, respectively, including the impact of the interest rate swap agreements prior to its maturity.

The term loan A facility and the revolving credit facility require Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries to comply with a maximum first lien net leverage ratio.

A breach of this covenant is subject to certain equity cure rights.

Prior to the April 2020 credit amendment, the Company was required to comply with a maximum first lien net leverage ratio.

We were in compliance with our financial covenant at December 31, 2021.

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The credit agreement governing the senior secured credit facilities contains certain customary affirmative covenants and events of default.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2020:

2021 2022 2023 2024 2025 Thereafter Total

(In thousands)

Term loans (1)

$ 10,750 $ 10,750 $ 1,013,188 $ — $ — $ — $ 1,034,688

Interest on long-term debt (2)

27,766 26,498 25,229 — — — 79,493

Operating leases (3)

124,435 129,972 121,343 110,529 96,534 519,314 1,102,127

$ 162,951 $ 167,220 $ 1,159,760 $ 110,529 $ 96,534 $ 519,314 $ 2,216,308

(1) Obligations for term loans represent the scheduled principal payments in accordance with the terms of our senior secured credit agreement.

Refer to Note 11, Credit Arrangements and Debt Obligations, to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information on our debt.

(2) Interest on the outstanding principal balance of the term loans was calculated using the effective interest rate at December 31, 2020 of 2.50%, including commitment fees on the revolving credit facility, and prior to the effects of interest rate swap arrangements.

(3) Certain vehicle and other lease arrangements that we elected not to recognize on the balance sheet in accordance with ASC 842, Leases, are immaterial and excluded from the above table.

Refer to Note 4, Leases, to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information on leases.

(4) Remaining payments of $6.7 million for the one-time Deemed Repatriation Transition Tax are excluded from the above table, which is payable over the next five years.

(5) Payroll tax deferrals were $20.4 million as of December 31, 2020, of which $10.2 million is payable in 2021, with the remaining $10.2 million payable in 2022, as permitted under the provisions of the CARES Act, which are not included in the above table.

Other Obligations

We have 55 letters of credit outstanding used to guarantee certain rent payments for up to $2.4 million.

These letters of credit are guaranteed by cash deposits.

No amounts have been drawn against these letters of credit.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S.

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Actual results could differ from these estimates.

The accounting policies we believe are critical in the preparation of our consolidated financial statements relate to revenue recognition and goodwill and other intangible assets.

The accounting policies and estimates we believe are critical in the preparation of our consolidated financial statements relate to revenue recognition and goodwill and other intangible assets.

We have other significant accounting policies that are more fully described in Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

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The application of these policies to the services provided by each of our segments is discussed below.

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Our revenue recognition policy generally does not have significant judgments or estimates that significantly affect the determination of the amount, the allocation of the transaction price to performance obligations, or timing of revenue from contracts with customers.

The nature of our services does not require significant judgment or estimates to determine when control transfers to the customer.

Based on past practices and customer specific circumstances, we occasionally may grant concessions that impact the total transaction price.

If the transaction price may be subject to adjustment, significant judgment may be required to ensure that it is probable that significant reversal in the amount of cumulative revenue recognized will not occur.

As of December 31, 2021 and 2020, there were no material estimates related to the constraint of cumulative revenue recognized.

Full-Service Center-Based Child Care

Our full-service center-based child care services include traditional center-based child care and early education, preschool, and elementary education.

Our full-service center-based child care services include traditional center-based early education and child care, preschool, and elementary education.

We provide center-based child care services under two principal business models:

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The tuition paid by parents is recognized on a daily basis, but for convenience is recorded on a monthly basis.

We enter into contracts with employer sponsors to manage and operate their child care and early education centers for a management fee, or to provide child care services to their employees on an exclusive or priority basis.

We enter into contracts with employer sponsors to manage and operate their early education and child care centers for a management fee, or to provide child care services to their employees on an exclusive or priority basis.

These arrangements generally have a contractual term of three to ten years with varying terms and renewal and cancellation options, and may also include operating subsidies paid either in lieu of or to supplement parent tuition.

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Back-Up Care Services

Back-up care services consist of center-based back-up child care, in-home child and adult/elder dependent care, and self-sourced reimbursed care.

We provide back-up care services through our child care centers and in-home care providers, as well as through the back-up care network.

Our back-up care offers access to a contracted network of in-home service agencies and center-based providers in locations where we do not otherwise have in-home care providers or centers with available capacity.

Back-up care services consist of center-based back-up child care, in-home child and adult/elder dependent care, school-age camps, virtual tutoring, and self-sourced reimbursed care.

We provide back-up care services through our child care centers, school-age camps and in-home caregivers, as well as through the back-up care network.

Our back-up care offers access to a contracted network of in-home service agencies and center-based providers in locations where we do not otherwise have in-home caregivers or centers with available capacity, and to a network of tutoring service providers.

Self-sourced reimbursed care is a reimbursement program for clients to utilize in emergency-type situations to provide payments to their employees.

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Revenue for self-sourced reimbursed care is based on a fee earned for each payment processed (i.e., on a net basis as we are acting as an agent for the payment of the self-sourced care reimbursement from clients to their employees) and is recognized in the month the payments are processed.

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Educational Advisory and Other Services

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Educational advisory services revenue is primarily comprised of fixed and variable fees paid by employer clients for program management, coaching, and subscription of content, and, to a lesser extent, retail fees collected from users at the point of service.

These arrangements generally have contractual terms of one to three years with varying terms and renewal and cancellation options.

These arrangements generally have contractual terms of three years with varying terms and renewal and cancellation options.

Fees for educational advisory services are determined based on the expected number of program participants and the services selected, and are generally billed in advance.

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Subscription fees are recognized on a straight-line basis using the time-elapsed method over the contract term, and variable transaction fees earned are allocated to that distinct transaction consistent with the overall allocation objective.

Significant Judgment and Estimates

We generally do not have significant judgments or estimates that significantly affect the determination of the amount, the allocation of the transaction price to performance obligations, or timing of revenue from contracts with customers.

The nature of our services does not require significant judgment or estimates to determine when control transfers to the customer.

Based on past practices and customer specific circumstances, we occasionally may grant concessions that impact the total transaction price.

As of December 31, 2020 and 2019, there were no material estimates related to the constraint of cumulative revenue recognized.

Goodwill and Intangible Assets — We account for business combinations under the acquisition method of accounting.

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Indefinite lived intangible assets are also subject to an annual evaluation to determine whether events and circumstances continue to support an indefinite useful life.

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Goodwill impairment assessments are performed at the reporting unit level, which are an operating segment or one level below the operating segment.

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The impairment is allocated to the long-lived assets on a pro rata basis using the relative carrying amounts, but only to the extent the carrying amount of an asset is above its fair value.

During the year ended December 31, 2021, we recorded impairment charges for long-lived assets of $10.6 million related to fixed assets and operating lease right-of-use assets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis