What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-02-28 · 131 added, 124 removed, 313 unchanged (45% 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations generally discusses our results of operations for the fiscal years ended December 31, 2023 and 2022 and provides comparisons between such fiscal years.

For discussion and comparison for the fiscal years ended December 31, 2022 and 2021, 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 the fiscal year ended December 31, 2022, filed with the SEC on February 28, 2023.

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.

8 unchanged sentences

At December 31, 2023, we operated 1,049 early education and child care centers, consisting of 618 centers in North America and 431 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 have the capacity to serve approximately 120,000 children 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, 2022, 99% of our early education and child care centers were open.

At December 31, 2023, we had more than 1,450 client relationships with employers across a diverse array of industries, including more than 220 Fortune 500 companies.

14 unchanged sentences

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

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.

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

In fiscal year 2024, we realigned our organizational structure to better reflect synergies across certain business lines resulting in a change in reportable segments.

As a result, effective January 1, 2024, the back-up care reportable segment will now include the Sittercity operations.

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.

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 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.

During the year ended December 31, 2023, we saw strong year-over-year revenue growth, with a 19% increase in revenue for our full service center-based child care segment and net enrollment growth of 8% as centers continue to re-ramp post-pandemic.

To track our continued progress on the recovery from the pandemic, we monitor same-center occupancy for a cohort of centers that has been operating since the 2021 fall enrollment cycle.

Same-center occupancy represents utilization for each respective center and is calculated as the average full-time enrollment divided by the total operating capacity during the period.

This cohort of centers totaled 809 centers as of December 31, 2023.

For the quarter ended December 31, 2023, 36% of these centers were more than 70% enrolled, 46% were between 40-70% enrolled and 18% were less than 40% enrolled, which reflects improved occupancy when compared to the same period in the prior year.

Such trends are consistent with the year to date results.

We also saw solid growth in back-up care with a 26% year-over-year increase in revenue as a result of increased utilization and new clients.

While we continue to see year-over-year growth and progress, we are still navigating through a dynamic operating environment that is impacted by a tight labor market, varying enrollment demands, shifting work demographics, increased costs and challenging macroeconomic conditions.

We continue to monitor and respond to the changing conditions, and the changing needs of clients, families and children, including the routine closure of underperforming centers in order to optimize our portfolio of centers to accommodate changes in demands and demographic workforce shifts in the markets we serve.

As a result of the impact of the pandemic, there has been an elevated number of center closures in recent years, totaling 31 in 2022 and 49 in 2023, in addition to the impairment of certain assets.

We expect this trend to continue into 2024 as we execute on the closure of certain underperforming centers identified during our portfolio review process, including a number of centers in the U.K.

Where possible, we shift enrollment and teachers to other centers at nearby locations.

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.

2 unchanged sentences

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.

As we continue to navigate this post-pandemic recovery period, 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;

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

• 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;

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

• maintenance and incremental growth of client relationships, additional growth in expanded service offerings and cross-selling of services to clients;

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

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

• successful management and improvement of underperforming centers.

• successful management of underperforming centers, through improved enrollment or exit and management of costs.

Results of Operations

9 unchanged sentences

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

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

Interest expense — net (51,609) (2.2) % (39,486) (1.9) %

9 unchanged sentences

(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 financial measures.

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

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

11 unchanged sentences

Revenue generated by the full service center-based child care segment in the year ended December 31, 2023 increased by $286.9 million, or 19%, 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.

Tuition revenue increased by $269.1 million, or 20%, when compared to the prior year, on an 8% net increase in enrollment and average tuition rate increases at our child care centers of approximately 7%, as well as incremental contributions during the year of approximately $70 million from the 75 child care centers acquired in July 2022 (“Only About Children”).

While center enrollment continues to improve, the ongoing labor market challenges and current economic conditions have constrained enrollment and slowed the recovery in both the U.S.

and international markets.

We expect continued revenue improvement throughout 2023.

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.

We expect continued occupancy improvement in relation to the same prior periods in 2024, with more modest improvement in the U.K.

as that geography remains more impacted.

During the year ended December 31, 2023, we also received $1.7 million from pandemic-related government support programs related to tuition support that was recorded to revenue, which is a decrease from the $5.5 million received in 2022.

Management fees and operating subsidies from employer sponsors increased $17.8 million, or 12%, primarily due to higher operating subsidies required to support center operations as enrollment continues to increase, and due to a decrease in funding received from pandemic-related government support programs.

Funding received from government support programs reduced certain center operating costs, which impact the related operating subsidies.

During the years ended December 31, 2023 and 2022, such funding received from these pandemic-related government support programs reduced the operating subsidy revenue due from employers by $17.5 million and $31.7 million, respectively.

Revenue generated by back-up care services in the year ended December 31, 2023 increased by $106.9 million, or 26%, 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 growth in the back-up care segment was primarily attributable to increased utilization of center-based, in-home and school-age camp back-up care from new and existing clients.

Revenue generated by educational advisory and other services in the year ended December 31, 2023 increased by $4.1 million, or 4%, when compared to the prior year.

3 unchanged sentences

Cost of services in the full service center-based child care segment increased by $272.9 million, or 22%, to $1.5 billion in the year ended December 31, 2023, when compared to the prior year.

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.

The increase in cost of services was primarily associated with increased labor costs related to expanded enrollment and wage rate increases, as well as the operating costs associated with the 75 Only About Children child care centers acquired July 1, 2022.

Personnel costs increased 21%, or 16% before including incremental costs associated with the Only About Children centers.

In addition to the personnel costs for the incremental 8% net enrollment increase noted above and premiums associated with the deployment of temporary staff to meet enrollment demands, we have invested in higher wages for center staff, resulting in an increase of approximately 8% to the average hourly wage in 2023 compared to 2022.

Cost of services also includes impairment costs of $32.0 million in 2023 and $14.1 million in 2022, related to fixed assets and operating lease right of use assets.

Funding received from pandemic-related government support programs reduced center operating expenses by $49.4 million in 2023, a decrease of $37.4 million compared to $86.8 million in government funding received in 2022.

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 $17.5 million and $31.7 million in the years ended December 31, 2023 and 2022, respectively.

Cost of services in the back-up care segment increased by $70.4 million, or 32%, to $291.4 million in the year ended December 31, 2023, when compared to the prior year.

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.

The increase in cost of services is primarily associated with 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.

In addition, cost of services in 2023 also includes value-added tax expense of $4.0 million related to prior periods and impairment costs of $3.9 million related to fixed assets and operating lease right of use assets.

Cost of services in the educational advisory and other services segment increased by $1.4 million, or 3%, to $52.6 million in the year ended December 31, 2023, when compared to the prior year due to increased personnel costs related to delivering services to the expanding customer base.

We expect to make additional investments in this segment over the next few years as we further enhance our educational advisory offerings to meet the needs of the modern employer and employee.

Gross Profit.

Gross profit increased by $53.0 million, or 11%, to $531.7 million for the year ended December 31, 2023 from $478.7 million for the prior year.

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.

The increase was primarily due to contributions from the back-up care segment from increased utilization and expanded sales.

Gross profit margin was 22% of revenue for the year ended December 31, 2023, a decrease of approximately 2% compared to 24% for the year ended December 31, 2022.

The decrease was primarily due to increased labor costs, incremental impairment costs, and a decrease in pandemic-related government support.

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

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 increased $37.9 million, or 13%, to $327.1 million for the year ended December 31, 2023 from $289.2 million for the year ended December 31, 2022, due to incremental spending to support the business as it continues to re-ramp post-pandemic, incremental overhead associated with the Only About Children operations acquired July 1, 2022, and higher labor costs.

SGA for the year ended December 31, 2022 included transaction costs of $9.2 million incurred in conjunction with the acquisition of Only About Children.

SGA was 14% of revenue for the year ended December 31, 2023, consistent with 2022.

Amortization of Intangible Assets.

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.

Amortization expense on intangible assets was $33.4 million for the year ended December 31, 2023, an increase from $31.9 million in the prior year, due to increases from intangible assets acquired in relation to acquisitions completed in 2022 and 2023, partially offset by the use of the accelerated method of amortization for certain intangible assets 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.

9 unchanged sentences

Income from operations $ 171,241 7.1 % $ 157,585 7.8 % $ 13,656 8.7 %

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

• 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.

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

• Income from operations for the full service center-based child care segment decreased $3.5 million, or 27%, for the year ended December 31, 2023, when compared to the same period in 2022 primarily due to incremental impairment losses of $17.9 million related to long-lived assets, increased labor costs, and a decrease of approximately $27 million in net contributions from pandemic-related government support, partially offset by increases in tuition revenue from enrollment growth and annual tuition rate increases.

We received less pandemic-related government support in 2023 as most of the programs for which we are eligible for ended by September 30, 2023.

Additionally, income from operations for the year ended December 31, 2022, included transaction-related costs of $9.2 million incurred in conjunction with the acquisition of Only About Children.

• Income from operations for the back-up care segment increased $14.6 million, or 12%, in the year ended December 31, 2023 when compared to the same period in 2022, due to the contributions from the expanding revenue base from increased sales and utilization, partially offset by higher personnel, service provider, technology and marketing costs to support the care delivery and growth in this segment, value-added tax expense of $4.0 million related to prior periods and impairment costs of $3.9 million related to long-lived assets.

• Income from operations for the educational advisory and other services segment increased $2.6 million, or 10%, in the year ended December 31, 2023 when compared to the same period in 2022 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.

During the year ended December 31, 2022, in connection with the Only About Children 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.

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 12, 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 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.

Net interest expense increased to $51.6 million for the year ended December 31, 2023 from $39.5 million for the year ended December 31, 2022, due to increased borrowings under our revolving credit facility, higher interest rates applicable to our debt, and incremental interest associated with a deferred payment for the Only About Children acquisition, which was paid in January 2024.

The weighted average interest rates for the term loans and revolving credit facility were 4.11% and 3.02% for the years ended December 31, 2023 and 2022, respectively, inclusive of the effects of cash flow hedges.

Based on our current interest rate projections, we estimate that our overall weighted average interest rate will approximate 5.25% to 5.50% for 2024 inclusive of the effects of cash flow hedges.

Income Tax Expense.

We recorded an income tax expense of $45.4 million during the year ended December 31, 2023, at an effective income tax rate of 38%, compared to income tax expense of $31.5 million, at an effective income tax rate of 28%, 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 or expiration of stock options and vesting of restricted stock.

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.

The difference between the effective income tax rates as compared to the statutory income tax rates was primarily due to the impact of unbenefited losses in certain foreign jurisdictions and the effects of excess (shortfall) tax benefit (expense) associated with the exercise or expiration of stock options and vesting of restricted stock.

Net shortfall tax expense increased tax expense by $2.9 million in 2023, compared to excess tax benefits that reduced income tax expense by $2.0 million in 2022, due to lower volume of equity transactions and lower excess tax benefits realized on each transaction in 2023.

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 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.

The effective income tax rate would have approximated 28% for the years ended December 31, 2023 and 2022 prior to the inclusion of the excess (shortfall) tax benefit (expense), other discrete items, and unbenefited losses in certain foreign jurisdictions.

Adjusted EBITDA and Adjusted Income from Operations.

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 EBITDA and adjusted income from operations increased $35.1 million, or 11%, and $29.9 million, or 16%, respectively, for the year ended December 31, 2023 over the comparable period in 2022 primarily as a result of the increase in gross profit in the back-up 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.

Adjusted net income increased $12.1 million, or 8%, for the year ended December 31, 2023 when compared to the same period in 2022, primarily due to the increase in adjusted income from operations, partially offset by higher interest expense and a higher effective tax rate.

Non-GAAP Financial Measures and Reconciliation

In our quarterly and annual reports, earnings press releases and conference calls, we discuss key financial measures that are not calculated in accordance with GAAP to supplement our consolidated financial statements presented on a GAAP basis.

These non-GAAP financial measures of adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are reconciled from their respective measures determined under GAAP as follows:

These non-GAAP financial measures of adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are reconciled to their most directly comparable financial measures determined and presented in accordance with GAAP as follows:

Years Ended December 31,

8 unchanged sentences

Additional adjustments:

COVID-19 related costs and impairments (b)

Impairment losses (b)

35,903 14,061

3 unchanged sentences

Loss on foreign currency forward contracts (e)

Loss on extinguishment of debt — 2,571

Total adjustments 70,195 59,184

1 unchanged sentence

Income from operations $ 171,241 $ 157,585

COVID-19 related costs and impairments (b)

Impairment losses (b)

35,903 14,061

6 unchanged sentences

33,415 31,912

COVID-19 related costs and impairments (b)

Impairment losses (b)

35,903 14,061

3 unchanged sentences

Loss on foreign currency forward contracts (e)

Loss on extinguishment of debt — 2,571

Interest on deferred consideration (f)

6 unchanged sentences

(a) Amortization of intangible assets represents amortization expense, including annual amortization expense of approximately $20 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.

(b) Impairment losses represent impairment costs for long-lived assets as a result of center closures and reduced operating performance at certain centers due to the impact of a challenging labor market and current macroeconomic conditions on our operations.

For the year ended December 31, 2023, impairment costs totaled $35.9 million for fixed assets and operating lease right-of-use assets, of which $32.0 million related to the full service center-based child care segment and $3.9 million related to the back-up care segment.

For the year ended December 31, 2022, impairment costs totaled $14.1 million 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.

(d) Other costs in the year ended December 31, 2023 consist of value-added tax expense of $5.5 million related to prior periods, of which $4.0 million was associated with the back-up care segment and $1.5 million was associated with the full service center-based child care segment.

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 cybersecurity incident of $1.9 million.

(e) During the year ended December 31, 2022, the Company 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 the year ended December 31, 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 Only About Children, a child care operator in Australia.

(g) Adjusted income tax expense represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 28% for the year ended December 31, 2023, and of approximately 26% for the year ended December 31, 2022.

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.

1 unchanged sentence

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, 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.

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 interest, taxes, depreciation, amortization, stock-based compensation expense, and at times, non-recurring costs, such as impairment losses, value-added tax expense related to prior periods, transaction costs, loss on foreign currency forward contracts, and net costs incurred in relation to a cybersecurity 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.

15 unchanged sentences

We had $71.6 million in cash ($89.5 million including restricted cash) at December 31, 2023, of which $32.1 million was held in foreign jurisdictions, compared to $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.

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

Operations outside of North America accounted for 27% and 26% of our consolidated revenue for the years ended December 31, 2023 and 2022, respectively.

The net impact on our liquidity from changes in foreign currency exchange rates was not material for the years ended December 31, 2023 and 2022.

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.

Our $400 million revolving credit facility is part of our senior secured credit facilities.

At December 31, 2023 and 2022, $380.7 million and $310.8 million of the revolving credit facility was available for borrowing, respectively.

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 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.

On July 1, 2022, we completed the acquisition of the outstanding shares of Only About Children, a child care operator in Australia.

We paid approximately $207 million, net of cash acquired, with an additional $106.5 million due 18 months after closing.

The initial purchase price was financed with cash on hand.

In January 2024, the Company utilized the revolving credit facility, combined with available cash on hand, to pay the deferred consideration of $106.5 million.

In addition, at the time of acquisition, we funded $9.7 million for cash-backed guarantees for leases that were recorded as restricted cash on our consolidated balance sheet.

In 2023, the cash-backed guarantees were replaced with letters of credit under our revolving credit facility releasing the cash from restriction.

We had a working capital deficit of $352.5 million and $438.6 million at December 31, 2023 and December 31, 2022, 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.

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.

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.

Our working capital deficit 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 improve as our center enrollment re-ramps and performance continues to recover.

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

During the years ended December 31, 2023 and 2022, we participated in government support programs that were enacted in response to the economic impact of the pandemic, including certain tax deferrals, tax credits and Federal block grant funding in the United States.

We received less pandemic-related government support in 2023 as most of the programs for which we are eligible ended by September 30, 2023.

During the years ended December 31, 2023 and 2022, $49.4 million and $86.8 million, respectively, was recorded as a reduction to cost of services in relation to these benefits, of which $17.5 million and $31.7 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.

Additionally, during the years ended December 31, 2023 and 2022, amounts received for tuition support of $1.7 million and $5.5 million, respectively, were recorded to revenue.

As of December 31, 2022, $1.2 million was recorded in prepaid expenses and other current assets for amounts due from government support programs and $4.6 million was recorded to other current liabilities related to government support received for future periods.

Amounts outstanding as of December 31, 2023 were not material.

As of December 31, 2023, we had $897.1 million in lease liabilities, $100.4 million of which is short term in nature.

1 unchanged sentence

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, 2022, we repurchased 2.0 million shares for $182.3 million, and at December 31, 2022, $198.3 million remained available under the repurchase program.

The share repurchase program has no expiration date and at December 31, 2023, $198.3 million remains available for future repurchases.

During the year ended December 31, 2023, we did not make any share repurchases under the Board-approved repurchase program.

During the year ended December 31, 2022, we repurchased 2.0 million shares for $182.3 million.

All repurchased shares have been retired.

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, 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.

However, if we were to experience renewed disruption from the pandemic or other similar global health crisis 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.

10 unchanged sentences

Cash provided by operating activities was $256.1 million for the year ended December 31, 2023, compared to $188.5 million for 2022.

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.

The increase in cash provided by operations relates to higher cash provided by working capital arising from the timing of billings and payments when compared to the prior year and an increase in net income after adjustment for incremental non-cash impairment losses of $21.8 million during the year ended December 31, 2023.

Cash provided by operating activities in the year ended December 31, 2022 includes a $5.4 million use of cash related to the post acquisition change in fair value for the settlement of a contingent consideration obligation which did not occur in 2023.

Cash Used in Investing Activities

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.

Cash used in investing activities was $126.9 million for the year ended December 31, 2023 compared to $278.0 million for the prior year, a decrease of $151.1 million.

The decrease in cash used in investing activities was primarily related to a decrease in payments for acquisitions.

During the year ended December 31, 2023, we invested $39.6 million in business acquisitions, primarily to acquire four centers in the U.S.

and six centers in Australia.

During the same period in 2022, we invested $210.4 million to acquire the outstanding shares of Only About Children, an operator of approximately 75 child care centers in Australia, and to acquire 3 additional centers.

Partially offsetting this decrease in cash used in investing activities is an increase in purchases of fixed assets in 2023 compared with the prior year.

During the year ended December 31, 2023, we had net investments of $90.8 million in fixed asset purchases for maintenance and refurbishments in our existing centers, technology across all segments, and new child care centers, compared to net investments of $60.0 million during the prior year, a net increase of $30.8 million.

Net proceeds from debt securities and other investments were $3.5 million in the year ended December 31, 2023, compared to net purchases of $1.7 million during the same period in the prior year, a net change of $5.2 million.

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 2023.

We expect that in 2024 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.

1 unchanged sentence

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.

Cash used in financing activities was $91.6 million for the year ended December 31, 2023 compared to $121.3 million in 2022.

The decrease in cash used in financing activities was primarily related to a decrease in share repurchases and in payments made for contingent consideration, offset by net activity under our revolving credit facility.

During the year ended December 31, 2022, we used $182.6 million in cash for share repurchases, with no repurchases in 2023, and during the year ended December 31, 2022, we used $13.9 million for payments of contingent consideration compared to $0.2 million in 2023.

These decreases in cash used were largely offset by an increase in net payments related to our revolving credit facility.

During the year ended December 31, 2023, we made net payments of $84.0 million compared with net borrowings of $84.0 million during the same period in 2022.

Additionally, proceeds received from the exercise of stock options were $11.2 million in the year ended December 31, 2023, compared to $13.2 million in 2022, a net decrease of $2.0 million due to a lower volume of transactions.

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.

7 unchanged sentences

Long-term debt $ 944,264 $ 961,581

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.

4 unchanged sentences

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.

There were no borrowings outstanding under the revolving credit facility at December 31, 2023 and letters of credit outstanding under the revolver were $19.3 million.

At December 31, 2022, borrowings outstanding under the revolving credit facility were $84.0 million and letters of credit outstanding under the revolver were $5.2 million.

In January 2024, the Company utilized the revolving credit facility, combined with available cash on hand, to pay $106.5 million in deferred consideration related to the July 1, 2022 acquisition of Only About Children.

Refer to Note 5, Acquisitions, to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information.

Borrowings under the credit agreement are subject to variable interest.

2 unchanged sentences

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.

Interest rate cap agreements for $300 million notional value had an effective date of June 30, 2020 and expired on October 31, 2023, while interest rate cap agreements for another $500 million notional amount had an effective date of October 29, 2021 and expired 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.

Interest rate cap agreements for $600 million, which had 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 had 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 blended weighted average interest rate for the term loans and revolving credit facility was 4.11%, and 3.02% for the years ended December 31, 2023 and 2022, 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 5.25% to 5.50% for 2024.

Based on the interest rates in effect as of December 31, 2023, interest payments on the outstanding principal balance of the term loans, including commitment fees on the revolving credit facility, are expected to range between $40 million and $70 million annually over the remaining term, prior to the inclusion of the effects of cash flow hedges.

However, actual interest paid may be different from these estimates based on changes in interest rates and borrowings outstanding.

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.

31 unchanged sentences

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.

These arrangements generally have a contractual term of 3 to 10 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.

The management fee included in contracts with employer sponsors is typically a monthly amount, and generally includes an annual escalator that is intended to reflect expected future cost increases.

8 unchanged sentences

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, 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.

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, to a network of tutoring service providers and third-party pet care providers.

Back-up care services consist of center-based back-up child care, in-home child and adult/elder dependent care, school-age camps, 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, including elder care providers, as well as through the back-up care network and through other providers.

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 child care centers with available capacity, to a network of tutoring service providers and third-party pet care 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.

11 unchanged sentences

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.

Additionally, revenue for tuition assistance and student loan repayments is based on a fee earned for each transaction 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.

2 unchanged sentences

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.

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

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

Amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition.

10 unchanged sentences

Our multi-year contracts with client customers typically result in low annual turnover, and our long-term relationships with clients make it difficult for competitors to displace us.

Customer relationships are considered to be finite-lived assets, with estimated lives typically ranging from two to seventeen years.

Certain trade names acquired as part of our strategy to expand by completing strategic acquisitions are considered to be finite-lived assets, with estimated lives typically ranging from two to ten years.

Customer relationships are considered to be finite-lived assets, with estimated lives typically ranging from 2 to 17 years.

Goodwill and certain trade names are considered to be indefinite-lived assets.

22 unchanged sentences

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