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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-25 · 154 added, 214 removed, 283 unchanged (57% of the section changed)

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations generally discusses our results of operations for Fiscal 2022 and Fiscal 2021 and provides comparisons between such fiscal years.

For discussion and comparison of Fiscal 2021 and Fiscal 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2021, filed with the SEC on February 25, 2022.

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.

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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 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 are a leading provider of high-quality education and care, including early education and child care, back-up and family care solutions, 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.

At December 31, 2022, we operated 1,078 early education and child care centers, consisting of 643 centers in North America and 435 centers internationally.

We have the capacity to serve approximately 120,000 children and their families in the United States, the United Kingdom, the Netherlands, Australia and India.

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

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:

At December 31, 2022, 99% of our early education and child care centers were open.

At December 31, 2022, we had more than 1,400 client relationships with employers across a diverse array of industries, including more than 215 Fortune 500 companies.

At December 31, 2022, 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

Classification North America Europe

Classification North America International

Employer locations:

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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.

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

Educational advisory and other services includes tuition assistance and student loan repayment program management, workforce education, related educational advising, college 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 18, 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, our global operations have been significantly impacted by the ongoing COVID-19 pandemic and the measures undertaken to prevent its spread.

Since March 2020, our global operations have been significantly impacted by the COVID-19 pandemic and the measures undertaken in response thereto.

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 responded by quickly adapting to the changing environment and 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.

Nearly all of our centers have subsequently re-opened and we continue to see year-over-year enrollment growth as centers re-ramp.

During the year ended December 31, 2022, we also saw solid growth in back-up care and educational advisory and other services as we delivered a record number of care sessions and supported more adult learners in their pursuit of higher education.

Additionally, on July 1, 2022, we expanded our footprint into Australia with the acquisition of Only About Children (“OAC”), a high-quality operator of approximately 75 early education and child care centers.

While we continue to see year-over-year growth and progress, we are still navigating through a dynamic operating environment that is recovering from the COVID-19 pandemic and the resulting impact on workplace and work-from-home policies and disrupted staff availability, and is also being impacted by the effects of current macroeconomic conditions.

We continue to monitor and respond to the changing conditions, challenges and disruptions resulting from the COVID-19 pandemic, and 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.

We have executed a number of strategic actions to strengthen our client partnerships and our employee value proposition to better position us as the service provider and employer of choice in our industry.

As the early education industry continues to be impacted by a challenging labor market, we continue to invest in our employees and build on what makes us an employer of choice.

We have enhanced compensation and expanded employee benefits, enhanced our mental health and wellness resources, and continue to champion for early educators through our Horizons Teacher Degree Program , where our employees can earn an associate or bachelor's degree in early childhood education at no-cost.

As we continue to recover from the impact of the pandemic, we remain committed to serving the needs of families, clients and our employees.

We are confident in our value proposition, 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.

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, and additional pricing actions to accommodate higher operating costs and the impact of persistent inflation,

• attraction and retention of qualified early childhood educators to meet the enrollment demand;

• effective pricing strategies, including tuition increases that correlate with expected 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;

• successful identification and integration of acquisitions and transitions of management of centers, and

• additional growth in the number of back-up care uses and care use types;

• successful identification and integration of acquisitions and transitions of management of centers;

• successful management and improvement of underperforming centers.

Results of Operations

The following table sets forth statement of income data as a percentage of revenue for the three years ended December 31, 2021, 2020 and 2019:

The following table sets forth statement of income data as a percentage of revenue for the years ended December 31, 2022 and 2021:

Years Ended December 31,

2021 2020 2019

(In thousands, except percentages)

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Income from operations 157,585 7.8 % 129,018 7.4 %

Loss on foreign currency forward contracts (5,917) (0.3) % — — %

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

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Income before income tax 112,182 5.6 % 90,348 5.1 %

Income tax benefit (expense) (19,889) (1.1) % 11,340 0.8 % (42,279) (2.1) %

Income tax expense (31,541) (1.6) % (19,889) (1.1) %

Net income $ 80,641 4.0 % $ 70,459 4.0 %

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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.

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 financial measures.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

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Total revenue $ 2,020,487 100.0 % $ 1,755,307 100.0 % $ 265,180 15.1 %

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.

Revenue generated by the full service center-based child care segment in the year ended December 31, 2022 increased by $196.6 million, or 15%, 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, as well as the acquisition of approximately 75 child care centers in Australia in the third quarter of 2022.

Tuition revenue increased by $199.9 million, or 17%, when compared to the prior year, on a 15% increase in enrollment and revenue contributions from OAC of $71.5 million.

While center enrollment continues to improve, our centers are operating below pre-COVID-19 enrollment levels as the ongoing labor market challenges have constrained enrollment and slowed the recovery in both the U.S.

and International markets.

We expect continued revenue improvement throughout 2023.

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.

Additionally, during the year ended December 31, 2022, $5.5 million was received from government programs related to tuition support, which has been included in tuition revenue.

Lower foreign currency exchange rates for our United Kingdom and Netherlands operations decreased 2022 tuition revenue by approximately $50 million, or 4%, and partially offset our revenue growth.

Fluctuations in the foreign currency exchange rates may continue throughout 2023 impacting tuition revenue.

Management fees and operating subsidies from employer sponsors decreased $3.3 million, or 2%, due to an increase in the funding received from government support programs, from $16.0 million in 2021 to $31.7 million in 2022, that reduced operating costs in certain employer-sponsored centers, thereby reducing the related operating subsidies.

This was partially offset by higher operating subsidies required to support center operations during this re-enrollment phase.

Revenue generated by back-up care services in the year ended December 31, 2022 increased by $58.5 million, or 17%, when compared to the prior year.

Revenue growth in the back-up care segment was primarily attributable to increased utilization of center-based and in-home back-up care from new and existing clients, expanded sales to new clients, and contributions from various other back-up care use types.

Revenue generated by educational advisory and other services in the year ended December 31, 2022 increased by $10.2 million, or 10%, 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.

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Cost of services in the full service center-based child care segment increased by $148.8 million, or 13%, to $1.3 billion in the year ended December 31, 2022, 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.

The increase in cost of services was primarily associated with increased labor costs as we staff centers to serve current and increasing enrollment in our centers, and the re-opening of our temporarily closed centers throughout the year, as well as the acquisition of OAC, which added approximately 75 child care centers in the third quarter of 2022, and general market inflation.

Personnel costs increased 19% primarily in connection with the enrollment growth at our centers, higher average labor costs and the incremental costs associated with the OAC centers.

Cost of services also includes impairment costs of $14.1 million in 2022 and $10.6 million in 2021, related to long-lived assets.

Funding received from government support programs reduced center operating expenses by $86.8 million in 2022, compared to $50.9 million in 2021.

As noted above, a portion of the funding received from government support programs reduced the operating costs in certain employer-sponsored centers, which in turn reduced the operating subsidy revenue due from employers for the related child care centers by $31.7 million and $16.0 million in the years ended December 31, 2022 and 2021, respectively.

Cost of services in the back-up care segment increased by $51.1 million, or 30%, to $221.1 million in the year ended December 31, 2022, 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.

The increase in cost of services is primarily associated with the shift in use mix as more back-up use was delivered through center-based and in-home back-up care in 2022 compared to more significant use of self-sourced reimbursed care in the prior year.

Cost of services in 2022 included higher care provider fees generated by the increase in utilization levels of center-based and in-home back-up 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 $1.6 million, or 3%, to $51.2 million in the year ended December 31, 2022, when compared to the prior year due to increased personnel costs related to delivering services to the expanding customer base.

Gross Profit.

Gross profit increased by $63.6 million, or 15%, to $478.7 million for the year ended December 31, 2022 from $415.0 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.

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.

Gross profit margin was 24% of revenue for the year ended December 31, 2022, consistent with the year ended December 31, 2021.

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 increased $32.3 million, or 13%, to $289.2 million for the year ended December 31, 2022 from $256.8 million for the year ended December 31, 2021, in order to support the business as it continues to re-ramp, including overhead associated with the acquired OAC operations, and associated with the transaction-related costs of $9.2 million incurred in conjunction with the acquisition of OAC.

SGA was 14% of revenue for the year ended December 31, 2022, consistent with 2021.

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.

Amortization expense on intangible assets was $31.9 million for the year ended December 31, 2022, an increase from $29.2 million in the prior year, due to increases from intangible assets acquired in relation to acquisitions completed in 2021 and 2022, partially offset by the use of the accelerated method of amortization for certain intangibles and decreases from intangible assets becoming fully amortized during the period.

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 increased by $28.6 million, or 22%, to $157.6 million for the year ended December 31, 2022 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:

The following table summarizes income from operations and percentage of revenue for each of our segments for the years ended December 31, 2022 and 2021:

Years Ended December 31,

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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.

• Income from operations for the full service center-based child care segment increased $21.4 million, or 253%, for the year ended December 31, 2022, when compared to the same period in 2021 primarily due to increases in tuition revenue from enrollment growth in our open centers and the re-opening of temporarily closed centers, as well as incremental net contributions of $25.7 million from government support programs that primarily reduced certain operating expenses, partially offset by transaction-related costs of $9.2 million incurred in conjunction with the acquisition of OAC, and incremental impairment losses of $3.5 million related to long-lived assets.

We expect to receive less government support in 2023 as most of these programs are currently expected to end by September 2023.

• Income from operations for the back-up care segment increased $3.6 million, or 3%, in the year ended December 31, 2022 when compared to the same period in 2021, due to the expanding revenue base from increased sales and utilization, partially offset by higher operating costs as the service delivery mix continues to shift back to pre-COVID-19 levels, with increasing utilization of traditional in-home and center-based back-up care, as well as other use types, and reduced self-sourced reimbursed care compared to the prior year.

• Income from operations for the educational advisory and other services segment increased $3.6 million, or 16%, in the year ended December 31, 2022 when compared to the same period in 2021 due to contributions from the expanding revenue base.

Loss on Foreign Currency Forward Contracts.

During the year ended December 31, 2022, in connection with the OAC acquisition in Australia completed on July 1, 2022, we entered into foreign currency forward contracts with a total notional value of approximately AUD$320 million, which included the expected payments for the purchase price and for letters of credit used to guarantee certain lease arrangements, to mitigate the impact of foreign currency fluctuations between signing of the definitive purchase agreement on May 3, 2022 and closing.

The cash flows associated with the business combination do not meet the criteria to be designated and accounted for as cash flow hedges and, as such, foreign currency gains and losses are recorded on the consolidated statement of income.

During the year ended December 31, 2022, we recognized realized losses of $5.9 million in relation to these forward contracts due to fluctuations in the Australian dollar.

Loss on Extinguishment of Debt.

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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.

Net interest expense increased to $39.5 million for the year ended December 31, 2022 from $36.1 million for the year ended December 31, 2021, due to increased borrowings under our revolving credit facility, as well as higher interest rates applicable to those borrowings.

Including the effects of cash flow hedges, the weighted average interest rates for the term loans and revolving credit facility were 3.02% and 2.98% for the years ended December 31, 2022 and 2021, respectively.

Based on our current interest rate projections, we estimate that our overall weighted average interest rate will approximate 4.25% for 2023.

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.

We recorded an income tax expense of $31.5 million during the year ended December 31, 2022, at an effective income tax rate of 28.1%, compared to income tax expense of $19.9 million, at an effective income tax rate of 22.0%, during the prior year.

Net excess tax benefits reduced income tax expense by $2.0 million in 2022, compared to $7.8 million in 2021, due to lower volume of equity transactions and lower excess tax benefits realized on each transaction in 2022.

Refer to Note 15, 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.

The effective income tax rate would have approximated 28% and 29% for the years ended December 31, 2022 and 2021, respectively, prior to the inclusion of the net 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 EBITDA and adjusted income from operations increased $44.9 million, or 17%, and $42.6 million, or 30%, respectively, for the year ended December 31, 2022 over the comparable period in 2021 primarily as a result of the increase in gross profit in the full service center-based child care segment.

Adjusted Net Income.

Adjusted net income increased $30.8 million, or 25%, for the year ended December 31, 2022 when compared to the same period in 2021 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.

The decrease was attributable to the temporary and permanent closure of our centers during the year in response to the COVID-19 pandemic, and reduced enrollment in the centers that re-opened.

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

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 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.

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, but traditional in-center and in-home use remained below pre-COVID-19 levels as of December 31, 2020.

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.

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

Acquisitions completed in 2019 and 2020 contributed $9.8 million to the growth of this segment in 2020.

Cost of Services.

Cost of services decreased $328.5 million, or 21%, to $1.2 billion for the year ended December 31, 2020 from $1.5 billion for the prior year.

Cost of services in the full-service center-based child care segment decreased by $310.4 million, or 23%, to $1.0 billion when compared to the prior year.

The decrease is primarily due to reductions in personnel costs, which decreased 25%, and program supplies and materials, which decreased 15%, in connection with the reduced enrollment associated with the temporary center closures, and contributions from government support programs that reduced certain payroll and other operating expenses by a total of $83.5 million.

These reductions in costs were partially offset by impairment costs of $26.2 million for long-lived assets incurred in connection with the impact of COVID-19 on our operations, costs associated with the permanent closure of certain centers of $6.6 million, including related severance and facilities costs, and incremental occupancy costs associated with new centers added since December 31, 2019.

Cost of services in the back-up care segment decreased by $24.2 million, or 14%, to $145.1 million when compared to the prior year.

The decrease is primarily due to reductions in personnel costs and care provider fees, which represented approximately 65% of total costs of services for this segment in 2020 as compared to approximately 75% in 2019, as traditional utilization levels were lower than the prior year.

This reduction was offset by technology and marketing spending to support and enhance our customer user experience and service delivery, and impairment costs of $2.1 million in relation to the decrease in fair value of an equity investment.

Cost of services in the educational advisory and other services segment increased by $6.1 million, or 16%, to $44.4 million when compared to the prior year, which is broadly consistent with revenue growth.

The increase is due to personnel costs related to delivering services to the expanding customer base.

Gross Profit.

Gross profit decreased by $218.4 million, or 42%, to $304.5 million for the year ended December 31, 2020 from $522.9 million for the prior year.

Gross profit margin was 20% of revenue for the year ended December 31, 2020, a decrease of approximately 5% compared to the year ended December 31, 2019.

The decrease in gross profit is primarily due to reduced margins in the full-service center-based child care segment from the temporary closure of centers, reduced enrollment in the centers that have re-opened, and related impairment charges on long-lived assets, partially offset by increases in gross profit from expanded back-up care, and educational advisory and other services.

Selling, General and Administrative Expenses.

SGA of $219.6 million for the year ended December 31, 2020 was relatively consistent with the same period in 2019, in order to support the business throughout the pandemic and as it re-ramps.

SGA was 15% of revenue for the year ended December 31, 2020, compared to 11% for the same period in 2019 due to the lower revenue base.

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 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.

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 (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,

2020 2019 Change 2020 vs 2019

(In thousands, except percentages)

Full service center-based child care $ (155,382) (15.1) % $ 166,011 9.9 % $ (321,393) (193.6) %

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

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, of which $14.6 million reduced the operating subsidies paid by employers.

• 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.

• Income from operations for the educational advisory and other services segment increased $4.4 million to $25.8 million for the year ended December 31, 2020, or 20%, when compared to the same period in 2019 due to contributions from the expanding revenue base.

Net Interest Expense.

Net interest expense decreased to $37.7 million for the year ended December 31, 2020 from $45.2 million for the year ended December 31, 2019, 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, the weighted average interest rates for the term loans and revolving credit facility were 3.23% and 3.89% for the years ended December 31, 2020 and 2019, respectively.

Income Tax Expense.

We recorded an income tax benefit of $11.3 million during the year ended December 31, 2020, at an effective income tax rate of (72.5)%, compared to income tax expense of $42.3 million, at an effective income tax rate of 19%, 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, which have a proportionately greater effect in 2020 due to the significantly lower income before income tax.

The excess tax benefits reduced income tax expense by $16.2 million in 2020, compared to $13.9 million in the same 2019 period, due to higher volume of equity transactions.

The effective income tax rate would have approximated 28% and 25% for the years ended December 31, 2020 and 2019, 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 decreased $170.5 million, or 43%, and $176.7 million, or 66%, respectively, for the year ended December 31, 2020 over the comparable period in 2019 primarily as a result of the decrease in gross profit in the full-service center-based child care segment, partially offset by growth in the back-up care and educational advisory and other services segments.

Adjusted Net Income.

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.

Non-GAAP Financial Measures and Reconciliation

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Years Ended December 31,

2021 2020 2019

(In thousands, except share data)

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Interest expense — net 39,486 36,099

Income tax expense (benefit) 19,889 (11,340) 42,279

Income tax expense 31,541 19,889

Depreciation 74,230 79,658

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Additional adjustments:

COVID-19 related costs (b)

COVID-19 related costs and impairments (b)

14,061 10,582

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28,111 23,060

Loss on extinguishment of debt 2,571 — —

Other costs (d)

578 3,486 626

Non-cash operating lease expense (e)

Loss on foreign currency forward contracts (e)

Loss on extinguishment of debt — 2,571

Total adjustments 59,184 36,791

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Income from operations $ 157,585 $ 129,018

COVID-19 related costs (b)

COVID-19 related costs and impairments (b)

14,061 10,582

Other costs (d)

578 3,486 626

Adjusted income from operations $ 182,741 $ 140,178

Net income $ 80,641 $ 70,459

Income tax expense (benefit) 19,889 (11,340) 42,279

Income tax expense 31,541 19,889

Income before income tax 112,182 90,348

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31,912 29,172

COVID-19 related costs (b)

COVID-19 related costs and impairments (b)

14,061 10,582

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28,111 23,060

Loss on extinguishment of debt 2,571 — —

Other costs (d)

578 3,486 626

Loss on foreign currency forward contracts (e)

Loss on extinguishment of debt — 2,571

Interest on deferred consideration (f)

Adjusted income before income tax 206,235 156,311

Adjusted income tax expense (f)

Adjusted income tax expense (g)

(54,036) (34,915)

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Diluted adjusted earnings per common share $ 2.60 $ 1.99

(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.

(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.

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 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.

(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 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.

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

(b) COVID-19 related costs and impairments represent impairment costs for long-lived assets as a result of temporary and permanent center closures and decreased operating performance due to the impact of the COVID-19 pandemic on our operations or the recovery therefrom.

For the years ended December 31, 2022 and 2021, impairment costs totaled $14.1 million and $10.6 million, respectively, related to the full service center-based child care segment.

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

(d) Other costs in the year ended December 31, 2022 consist of transaction costs incurred in connection with acquisitions of $9.2 million and costs incurred in relation to a cyber incident of $1.9 million.

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

(e) During 2022, we entered into foreign currency forward contracts for the purchase of Australian dollars to satisfy the purchase price of an acquisition completed on July 1, 2022.

A loss of $5.9 million resulting from fluctuations in foreign currency rates was recognized in 2022 in relation to these contracts.

(f) Interest on deferred consideration represents the imputed interest on the deferred consideration issued in connection with the July 1, 2022 acquisition of OAC.

(g) Adjusted income tax expense represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 26% and 22% for the years ended December 31, 2022 and 2021, respectively.

The tax rate for 2022 represents a tax rate of approximately 28% applied to the adjusted income before income tax, less the effect of net 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 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.

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, stock-based compensation expense, and at times, non-recurring costs, such as impairment costs and other costs incurred due to the impact of COVID-19, transaction costs, loss on foreign currency forward contracts, loss on extinguishment of debt, and costs incurred and any insurance recoveries received in relation to a cyber incident.

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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• adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future;

• although depreciation, amortization and impairments are non-cash charges, the assets being depreciated, amortized and impaired will often have to be replaced in the future;

and adjusted EBITDA, adjusted income from operations and adjusted net income do not reflect any cash requirements for such replacements.

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We had $36.2 million in cash ($51.9 million including restricted cash) at December 31, 2022, of which $22.4 million was held in foreign jurisdictions, compared to $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.

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

Operations outside of North America accounted for 26% of our consolidated revenue for the years ended December 31, 2022 and 2021.

The net impact on our liquidity from changes in foreign currency exchange rates was not material for the years ended December 31, 2022 and 2021.

On April 21, 2020, the Company completed the issuance and sale of 2,138,580 shares of common stock to Durable Capital Master Fund LP at a price of $116.90 per share.

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.

On July 1, 2022, we completed the acquisition of the outstanding shares of Only About Children, a child care operator in Australia, for aggregate consideration of AUD$450 million.

We paid approximately AUD$300 million (USD$207 million), net of cash acquired, and will pay an additional USD$106.5 million 18 months after closing.

The initial purchase price was financed with cash on hand.

In addition, we funded AUD$14.1 million (USD$9.7 million) for cash-backed guarantees for leases that are recorded as restricted cash on our consolidated balance sheet.

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.

At December 31, 2022 and 2021, $310.8 million and $400 million of the revolving credit facility was available for borrowing, respectively.

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Refer to Note 12, 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 had a working capital deficit of $438.6 million and $81.9 million at December 31, 2022 and December 31, 2021, respectively.

Our working capital deficit in 2022 has primarily arisen from using cash to make long-term investments in fixed assets and acquisitions, deferred consideration issued in relation to an acquisition 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.

During the years ended December 31, 2022 and 2021, we participated in government support programs that were enacted in response to the economic impact of the COVID-19 pandemic, including certain tax deferrals, tax credits and Federal block grant funding in the United States.

We expect to receive less government support in 2023 as most of these programs are currently expected to end by September 30, 2023.

During the years ended December 31, 2022 and 2021, $86.8 million and $50.9 million, respectively, was recorded as a reduction to cost of services in relation to these benefits, of which $31.7 million and $16.0 million, respectively, reduced the operating subsidy revenue from employers for the related child care centers.

Additionally, during the year ended December 31, 2022, amounts received for tuition support of $5.5 million were recorded to revenue.

As of December 31, 2022 and 2021, $1.2 million and $3.3 million, respectively, was recorded in prepaid expenses and other current assets on the consolidated balance sheet for amounts due from government support programs.

As of December 31, 2022 and 2021, $4.6 million and $3.9 million, respectively, was recorded to other current liabilities related to government support received related to future periods, and 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.

As of December 31, 2022, the Company did not have payroll tax deferrals remaining.

As of December 31, 2022, we had $904.5 million in lease liabilities, $94.1 million of which is short term in nature.

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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, 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.

However, if we were to experience continued or renewed disruption from the COVID-19 pandemic 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.

Cash Flows Years Ended December 31,

2021 2020 2019

(In thousands)

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Net cash used in investing activities $ (278,049) $ (117,389)

Net cash provided by (used in) financing activities $ (230,030) $ 228,996 $ (149,128)

Net cash used in financing activities $ (121,338) $ (230,030)

Cash, cash equivalents and restricted cash — beginning of year

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Cash provided by operating activities was $188.5 million for the year ended December 31, 2022, compared to $227.3 million for 2021.

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 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.

The decrease in cash provided by operations relates to lower cash provided by working capital arising from the timing of billings and payments when compared to the prior year and the payment of $5.4 million in contingent consideration during the year ended December 31, 2022, partially offset by the increase in net income of $10.2 million.

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 $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.

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 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.

Cash used in investing activities was $278.0 million for the year ended December 31, 2022 compared to $117.4 million for the prior year, an increase of $160.6 million.

The increase in cash used in investing activities was primarily related to acquisitions when compared to the prior year.

During the year ended December 31, 2022, we used $210.4 million to acquire the outstanding shares of OAC, an operator of approximately 75 child care centers in Australia, and to acquire three additional centers.

During the year ended December 31, 2021, we used $53.9 million to acquire 18 centers as well as a camp and back-up care provider in five acquisitions.

During the year ended December 31, 2022, we invested an additional $2.3 million in fixed assets, offset by a decrease of $4.1 million in cash used to purchase debt securities and other investments when compared to the prior year.

Additionally, during the year ended December 31, 2022, we used $5.9 million in cash to settle foreign currency arrangements, which did not occur in the prior year.

We entered into foreign currency forward contracts in 2022 in advance of the acquisition completed on July 1, 2022 in Australia.

We expect that in 2023 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.

As part of our growth strategy, we also expect to continue to make selective acquisitions.

Cash Provided by (Used in) Financing Activities

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.

Cash Used in Financing Activities

Cash used in financing activities was $121.3 million for the year ended December 31, 2022 compared to cash used in financing activities of $230.0 million in 2021.

The change in financing activities was primarily related to net borrowings on our revolving credit facility of $84.0 million during the year ended December 31, 2022, compared to no borrowings under our revolving credit facility in the year ended December 31, 2021.

Additionally, we had $31.3 million less in share repurchases during the year ended December 31, 2022 compared to the prior year, offset by a decrease in proceeds from the exercise of stock options and the issuance and sale of restricted stock, and amounts paid for contingent consideration.

Our senior secured credit facilities consist of a $600 million term loan B facility (“term loan B”), a $400 million term loan A facility (“term loan A”), and a $400 million multi-currency revolving credit facility.

Long term debt obligations were as follows:

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Long-term debt $ 961,581 $ 976,396

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.

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, 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.

On December 21, 2022, the Company amended its existing senior secured credit facilities to replace the LIBOR-based benchmark rate with a term SOFR benchmark rate.

This amendment did not alter the applicable interest rate margins in effect prior to the change.

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.

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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 May 26, 2026.

There were $84.0 million in borrowings outstanding on the revolving credit facility at December 31, 2022.

There were no borrowings outstanding on the revolving credit facility at December 31, 2021.

Borrowings under the credit agreement are subject to variable interest.

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

On December 21, 2022, the Company amended its existing interest rate cap agreements in conjunction with the amendment to its senior secured credit facilities, and replaced the one-month LIBOR rate with the one-month term SOFR rate.

In June 2020, we entered into interest rate cap agreements with a total notional value of $800 million to provide us with interest rate protection in the event the one-month LIBOR rate increases above 1% (effective December 30, 2022, one-month term SOFR rate increases above 0.9%).

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 an effective date of October 29, 2021 and expire on October 31, 2023.

In December 2021, we entered into additional interest rate cap agreements with a total notional value of $900 million.

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% (effective December 30, 2022, one-month term SOFR rate increases above 2.4%).

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% (effective December 30, 2022, one-month term SOFR rate increases above 2.9%).

The weighted average interest rate for the term loans and revolving credit facility was 3.02%, and 2.98% for the years ended December 31, 2022 and 2021, respectively, including the impact of the cash flow hedges.

Based on our current interest rate projections, we estimate that our overall weighted average interest rate will approximate 4.25% for 2023.

Based on the interest rates in effect as of December 31, 2022, interest payments on the outstanding principal balance of the term loans, including commitment fees on the revolving credit facility, are estimated at $57 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.

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, 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 and expire on October 31, 2023.

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.

The term loan A 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.

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

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

We were in compliance with our financial covenant at December 31, 2022.

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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, 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.

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, pet care and self-sourced reimbursed care.

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

Self-sourced reimbursed care is a reimbursement program available to employer sponsors when other care solutions are not available, to provide payments to their employees to assist with the cost of self-sourced dependent care.

Back-up care revenue is primarily comprised of fixed and variable consideration paid by employer sponsors, and, to a lesser extent, co-payments collected from users at the point of service.

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Allocation of the consideration earned as the service is performed is consistent with the overall allocation objective.

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.

Revenue for self-sourced reimbursed care and pet care is based on a fee earned for each transaction processed and is recorded on a net basis as we are acting as an agent, and is recognized in the month the transactions are processed.

Educational Advisory and Other Services

Our educational advisory services consist of tuition assistance and student loan repayment program administration, workforce education, and related educational consulting services (“EdAssist Solutions”), and college admissions advisory services (“College Coach”).

Our educational advisory services consist of tuition assistance and student loan repayment program management, workforce education, and related educational consulting services (“EdAssist”), and college advisory services (“College Coach”).

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.

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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.

Revenue for EdAssist Solutions is recognized on a straight-line basis using the time-elapsed method over the contract term with additional charges recognized in the month the additional services are provided consistent with the overall allocation objective.

Revenue for College Coach is recognized over the contract term as college admissions advisory services are provided and customers receive the benefit.

Revenue for EdAssist is recognized on a straight-line basis using the time-elapsed method over the contract term with additional charges recognized in the month the additional services are provided consistent with the overall allocation objective.

Additionally, revenue for tuition assistance and student loan repayments is based on a fee earned for each payment processed and is recorded on a net basis as we are acting as the agent for the processing of the payment from clients to their employees, and is recognized in the month the payments are processed.

Revenue for College Coach is recognized over the contract term as college advisory services are provided and customers receive the benefit.

Other services consist of the Sittercity business, an online marketplace for families and caregivers.

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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.

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

Goodwill impairment assessments are performed at the reporting unit level.

In performing the goodwill impairment test, we may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying value.

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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