BRIGHT HORIZONS FAMILY SOLUTIONS INC. 10-K

Item 8. Financial Statements and Supplementary Data BRIGHT HORIZONS FAMILY SOLUTIONS INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 51 Consolidated Balance Sheets 53 Consolidated Statements of Income 54 Consolidated Statements of Comprehensive Income 55 Consolidated Statements of Changes in Stockholders’ Equity 56 Consolidated Statements of Cash Flows 57 Notes to the Consolidated Financial Statements 59 50 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Bright Horizons Family Solutions Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Bright Horizons Family Solutions Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue - Refer to Notes 2 and 3 to the financial statements Critical Audit Matter Description The Company provides center-based early education and child care, back-up care, and educational advisory and other services to customers, which primarily consist of employer sponsors and parents. The Company generates revenue from services based on the nature of the promise and the consideration specified in contracts with customers. At contract inception, the Company assesses the services promised in the contract and identifies each distinct performance obligation. The transaction price of a contract is allocated to each distinct performance obligation using the relative stand-alone selling price and recognized as revenue when, or as, control of the service is passed to the customer. Revenue is primarily recognized over time as control of the service is transferred to the customer. We identified revenue as a critical audit matter because of the number of disparate services offered by the Company and the significant volume of revenue contracts and transactions. This requires extensive audit effort due to the volume of contracts and transactions and requires a high degree of auditor judgment when performing audit procedures. 51 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to revenue included the following, among others: • We tested the effectiveness of controls over the recognition of revenue. • We evaluated the Company’s accounting policies for compliance with the applicable revenue recognition accounting guidance. • We performed analytical procedures to test the reasonableness of recorded balances. • We selected a sample of transactions within each significant revenue stream and performed the following: ◦ Evaluated whether the transaction was accounted for in accordance with the Company’s policies. ◦ Tested the amounts recognized to source documents and tested the mathematical accuracy of the recorded revenue. ◦ Performed procedures to test the transactions were recorded in the appropriate accounting period. /s/ Deloitte & Touche LLP Boston, Massachusetts February 27, 2024 We have served as the Company’s auditor since 2005. 52 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED BALANCE SHEETS December 31, 2023 2022 (In thousands, except share data) ASSETS Current assets: Cash and cash equivalents $ 71,568 $ 36,224 Accounts receivable — net of allowance for credit losses of $ 2,317 and $ 2,947 at December 31, 2023 and 2022, respectively 281,710 217,170 Prepaid expenses and other current assets 93,621 94,316 Total current assets 446,899 347,710 Fixed assets — net 579,296 571,471 Goodwill 1,786,405 1,727,852 Other intangible assets — net 216,576 245,574 Operating lease right-of-use assets 774,703 801,626 Other assets 92,265 104,636 Total assets $ 3,896,144 $ 3,798,869 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 18,500 $ 16,000 Borrowings under revolving credit facility — 84,000 Accounts payable and accrued expenses 259,077 230,634 Current portion of operating lease liabilities 100,387 94,092 Deferred revenue 272,891 222,994 Other current liabilities 148,578 138,574 Total current liabilities 799,433 786,294 Long-term debt — net 944,264 961,581 Operating lease liabilities 796,701 810,403 Other long-term liabilities 101,259 100,466 Deferred revenue 8,656 8,933 Deferred income taxes 33,155 50,739 Total liabilities 2,683,468 2,718,416 Commitments and contingencies (Note 20) Stockholders’ equity: Preferred stock, $ 0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at December 31, 2023 and 2022 — — Common stock, $ 0.001 par value; 475,000,000 shares authorized; 57,817,593 and 57,531,130 shares issued and outstanding at December 31, 2023 and 2022, respectively 58 58 Additional paid-in capital 645,894 599,422 Accumulated other comprehensive loss ( 59,101 ) ( 70,629 ) Retained earnings 625,825 551,602 Total stockholders’ equity 1,212,676 1,080,453 Total liabilities and stockholders’ equity $ 3,896,144 $ 3,798,869 See accompanying notes to consolidated financial statements. 53 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2023 2022 2021 (In thousands, except share data) Revenue $ 2,418,257 $ 2,020,487 $ 1,755,307 Cost of services 1,886,533 1,541,834 1,340,296 Gross profit 531,724 478,653 415,011 Selling, general and administrative expenses 327,068 289,156 256,821 Amortization of intangible assets 33,415 31,912 29,172 Income from operations 171,241 157,585 129,018 Loss on foreign currency forward contracts — ( 5,917 ) — Loss on extinguishment of debt — — ( 2,571 ) Interest expense — net ( 51,609 ) ( 39,486 ) ( 36,099 ) Income before income tax 119,632 112,182 90,348 Income tax expense ( 45,409 ) ( 31,541 ) ( 19,889 ) Net income $ 74,223 $ 80,641 $ 70,459 Earnings per common share: Common stock — basic $ 1.28 $ 1.38 $ 1.16 Common stock — diluted $ 1.28 $ 1.37 $ 1.15 Weighted average common shares outstanding: Common stock — basic 57,717,102 58,344,817 60,312,690 Common stock — diluted 57,932,574 58,490,652 60,871,399 See accompanying notes to consolidated financial statements. 54 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, 2023 2022 2021 (In thousands) Net income $ 74,223 $ 80,641 $ 70,459 Other comprehensive income (loss): Foreign currency translation adjustments 29,008 ( 67,065 ) ( 15,741 ) Unrealized gain (loss) on cash flow hedges and investments, net of tax ( 17,480 ) 33,795 5,451 Total other comprehensive income (loss) 11,528 ( 33,270 ) ( 10,290 ) Comprehensive income $ 85,751 $ 47,371 $ 60,169 See accompanying notes to consolidated financial statements. 55 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock Additional Paid-in Capital Treasury Stock, at Cost Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders’ Equity Shares Amount (In thousands, except share data) Balance at January 1, 2021 60,466,168 $ 60 $ 910,304 $ — $ ( 27,069 ) $ 400,502 $ 1,283,797 Stock-based compensation expense 23,060 23,060 Issuance of common stock under the Equity Incentive Plan 534,729 1 34,969 34,970 Shares received in net share settlement of stock option exercises and vesting of restricted stock ( 55,985 ) — ( 8,662 ) ( 8,662 ) Purchase of treasury stock ( 214,058 ) ( 214,058 ) Retirement of treasury stock ( 1,639,752 ) ( 2 ) ( 214,056 ) 214,058 — Other comprehensive loss ( 10,290 ) ( 10,290 ) Net income 70,459 70,459 Balance at December 31, 2021 59,305,160 59 745,615 — ( 37,359 ) 470,961 1,179,276 Stock-based compensation expense 28,111 28,111 Issuance of common stock under the Equity Incentive Plan 269,729 1 14,174 14,175 Shares received in net share settlement of stock option exercises and vesting of restricted stock ( 57,613 ) — ( 6,138 ) ( 6,138 ) Purchase of treasury stock ( 182,342 ) ( 182,342 ) Retirement of treasury stock ( 1,986,146 ) ( 2 ) ( 182,340 ) 182,342 — Other comprehensive loss ( 33,270 ) ( 33,270 ) Net income 80,641 80,641 Balance at December 31, 2022 57,531,130 58 599,422 — ( 70,629 ) 551,602 1,080,453 Stock-based compensation expense 28,834 28,834 Issuance of common stock under the Equity Incentive Plan 319,925 — 20,230 20,230 Shares received in net share settlement of stock option exercises and vesting of restricted stock ( 33,462 ) — ( 2,592 ) ( 2,592 ) Other comprehensive income 11,528 11,528 Net income 74,223 74,223 Balance at December 31, 2023 57,817,593 $ 58 $ 645,894 $ — $ ( 59,101 ) $ 625,825 $ 1,212,676 See accompanying notes to consolidated financial statements. 56 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2023 2022 2021 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 74,223 $ 80,641 $ 70,459 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 110,681 106,142 108,830 Amortization of original issue discount and deferred financing costs, and other non-cash items 9,752 2,114 2,363 Impairment losses 35,903 14,061 10,582 Loss on extinguishment of debt — — 2,571 Loss on foreign currency forward contracts — 5,917 — Stock-based compensation expense 28,834 28,111 23,060 Deferred income taxes ( 11,716 ) ( 9,644 ) ( 4,996 ) Changes in fair value of contingent consideration 2,744 1,305 7,338 Changes in assets and liabilities: Accounts receivable ( 64,503 ) ( 4,882 ) ( 34,624 ) Prepaid expenses and other current assets ( 11,265 ) ( 6,062 ) ( 4,397 ) Accounts payable and accrued expenses 25,999 19,958 6,238 Income taxes 3,477 ( 8,444 ) ( 6,781 ) Deferred revenue 48,362 ( 37,897 ) 60,198 Leases ( 2,083 ) ( 921 ) ( 5,709 ) Other assets ( 5,379 ) 11,082 ( 9,813 ) Other current and long-term liabilities 11,111 ( 13,010 ) 1,934 Net cash provided by operating activities 256,140 188,471 227,253 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets ( 91,020 ) ( 70,556 ) ( 63,491 ) Proceeds from the disposal of fixed assets 225 10,547 5,829 Proceeds from the maturity of debt securities and sale of other investments 19,538 23,392 24,080 Purchases of debt securities and other investments ( 16,050 ) ( 25,106 ) ( 29,912 ) Payments and settlements for acquisitions — net of cash acquired ( 39,629 ) ( 210,409 ) ( 53,895 ) Settlement of foreign currency forward contracts — ( 5,917 ) — Net cash used in investing activities ( 126,936 ) ( 278,049 ) ( 117,389 ) CASH FLOWS FROM FINANCING ACTIVITIES: Extinguishment of long-term debt — — ( 1,026,625 ) Borrowings of long-term debt, net of issuance costs of $ 7.7 million — — 992,298 Borrowings under revolving credit facility 402,500 295,000 — Payments under revolving credit facility ( 486,500 ) ( 211,000 ) — Principal payments of long-term debt ( 16,000 ) ( 16,000 ) ( 8,063 ) Payments for debt issuance costs — — ( 2,057 ) Purchase of treasury stock — ( 182,570 ) ( 213,830 ) Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase 11,184 13,235 37,503 Taxes paid related to the net share settlement of stock options and restricted stock ( 2,592 ) ( 6,138 ) ( 8,662 ) Payments of deferred and contingent consideration for acquisitions ( 225 ) ( 13,865 ) ( 594 ) Net cash used in financing activities ( 91,633 ) ( 121,338 ) ( 230,030 ) Effect of exchange rates on cash, cash equivalents and restricted cash ( 14 ) ( 2,471 ) ( 3,018 ) Net increase (decrease) in cash, cash equivalents and restricted cash 37,557 ( 213,387 ) ( 123,184 ) Cash, cash equivalents and restricted cash — beginning of year 51,894 265,281 388,465 Cash, cash equivalents and restricted cash — end of year $ 89,451 $ 51,894 $ 265,281 See accompanying notes to consolidated financial statements. 57 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Years ended December 31, 2023 2022 2021 (In thousands) RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS: Cash and cash equivalents $ 71,568 $ 36,224 $ 260,980 Restricted cash, included in prepaid expenses and other current assets 15,756 3,512 4,301 Restricted cash, included in other assets 2,127 12,158 — Total cash, cash equivalents and restricted cash — end of year $ 89,451 $ 51,894 $ 265,281 SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments of interest $ 73,996 $ 40,871 $ 32,242 Cash received from cash flow hedges of interest rate risk $ 31,826 $ 7,320 $ — Cash payments of income taxes $ 58,736 $ 50,202 $ 31,662 Cash paid for amounts included in the measurement of lease liabilities $ 156,324 $ 143,732 $ 141,563 NON-CASH TRANSACTIONS: Fixed asset purchases recorded in accounts payable and accrued expenses $ 2,127 $ 2,704 $ 1,957 Deferred or contingent consideration issued for acquisitions $ — $ 97,653 $ 7,337 Operating right-of-use assets obtained in exchange for operating lease liabilities — net $ 54,741 $ 52,367 $ 71,271 Restricted stock reclassified from other current liabilities to equity upon vesting $ 8,451 $ 4,030 $ 4,867 Treasury stock purchases in other current liabilities $ — $ — $ 228 See accompanying notes to consolidated financial statements. 58 Table of Contents BRIGHT HORIZONS FAMILY SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Bright Horizons Family Solutions Inc. (“Bright Horizons” or the “Company”) provides center-based early education and child care, back-up child and adult/elder care, tuition assistance and student loan repayment program management, educational advisory services, and other support services for employers and families in the United States, the United Kingdom, the Netherlands, Australia, and India. The Company provides services designed to help families, employers and their employees better integrate work and family life, primarily under multi-year contracts with employers who offer child care, dependent care, and workforce education services, as part of their employee benefits packages in an effort to support employees across life and career stages and improve employee engagement. As of December 31, 2023, the Company operated 1,049 early education and child care centers. On July 1, 2022, the Company acquired Only About Children (“Only About Children”), an operator of 75 child care centers in Australia. Refer to Note 5, Acquisitions , for additional information. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation — The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”). The Company’s significant accounting policies are described below. During the year ended December 31, 2023, the Company recorded expense of $ 5.5 million for an immaterial correction of an error related to value-added tax incurred in prior periods, of which $ 4.0 million is included in cost of services and $ 1.5 million is included in selling, general and administrative expenses. Refer to Note 18, Segment and Geographic Information , for additional information. Reclassification — Certain reclassifications have been made to prior year amounts within certain footnotes to conform to the current year presentation. Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Use of Estimates — The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results may differ from those estimates. Foreign Operations — The functional currency of the Company’s foreign subsidiaries is their local currency. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period and equity is translated at the historical rates. The cumulative translation effect for subsidiaries using a functional currency other than the U.S. dollar is included in accumulated other comprehensive income or loss as a separate component of stockholders’ equity. The Company’s intercompany accounts are denominated in the functional currency of the foreign subsidiary. Gains and losses resulting from the re-measurement of intercompany receivables that the Company considers to be of a long-term investment nature are recorded as a cumulative translation adjustment in accumulated other comprehensive income or loss as a separate component of stockholders’ equity, while gains and losses resulting from the re-measurement of intercompany receivables from those foreign subsidiaries for which the Company anticipates settlement in the foreseeable future are recorded in the consolidated statement of income. Concentrations of Credit Risk — Financial instruments that potentially expose the Company to concentrations of credit risk consisted mainly of cash and accounts receivable. The Company mitigates its exposure by maintaining its cash in financial institutions of high credit standing. The Company’s accounts receivable is derived primarily from the services it provides, and the related credit risk is dispersed across many clients in various industries with no single client accounting for more than 10% of the Company’s net revenue or accounts receivable. No significant credit concentration risk existed at December 31, 2023 and 2022. Cash, Cash Equivalents, and Restricted Cash — Cash and cash equivalents consist of cash on hand and highly liquid investments with maturities of three months or less from the date of purchase. The Company’s cash management system provides for the funding of the main bank disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks may be in excess of the cash balances at certain banks, creating book overdrafts. As of December 31, 2023, $ 9.0 million in book overdrafts were included in accounts payable and accrued expenses on the consolidated balance sheet. As of December 31, 2022, there were $ 8.6 million in book overdrafts. 59 Table of Contents The Company’s cash and cash equivalents that are restricted in nature as to withdrawal or usage are classified as restricted cash and are included in prepaid expenses and other current assets and in other assets on the consolidated balance sheet. Restricted cash is primarily comprised of cash and cash equivalents associated with the Company’s wholly-owned captive insurance company and cash deposits that guarantee letters of credit. Accounts Receivable — The Company generates accounts receivable from fees charged to parents and employer sponsors, which are generally billed monthly as services are rendered or in advance, and are classified as short-term. The Company monitors collections and maintains a provision for expected credit losses based on historical trends, current conditions, and relevant forecasted information, in addition to provisions established for specific collection issues that have been identified. Activity in the allowance for credit losses was as follows: Years ended December 31, 2023 2022 2021 (In thousands) Beginning balance $ 2,947 $ 3,006 $ 2,357 Provision 803 1,277 2,725 Write offs and recoveries ( 1,433 ) ( 1,336 ) ( 2,076 ) Ending balance $ 2,317 $ 2,947 $ 3,006 Fixed Assets — Property and equipment, including leasehold improvements, are carried at cost less accumulated depreciation or amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statement of income. Expenditures for maintenance and repairs are expensed as incurred, whereas expenditures for improvements and replacements are capitalized. Depreciation is included in cost of services and selling, general and administrative expenses depending on the nature of the expenditure. Business Combinations — Business combinations are accounted for 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. The accounting for business combinations requires estimates and judgment in determining the fair value of assets acquired and liabilities assumed, regarding expectations of future cash flows of the acquired business, and the allocation of those cash flows to the identifiable intangible assets. The determination of fair value is based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If actual results differ from these estimates, the amounts recorded in the financial statements could be impaired. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses; integration costs associated with a business combination are expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. Goodwill and Intangible Assets — Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of the net tangible and identifiable intangible assets acquired. The Company’s intangible assets principally consist of various customer relationships (including both client and parent relationships) and trade names. Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested annually for impairment or more frequently if there are indicators of impairment. Indefinite lived intangible assets are also subject to an annual evaluation to determine whether events and circumstances continue to support an indefinite useful life. 60 Table of Contents Goodwill impairment assessments are performed at the reporting unit level. In performing the goodwill impairment test, the Company 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. Qualitative factors may include, but are not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s services, regulatory developments, cost factors, and entity specific factors such as overall financial performance and projected results. If an initial qualitative assessment indicates that it is more likely than not that the carrying value exceeds the fair value of a reporting unit, an additional quantitative evaluation is performed. Alternatively, the Company may elect to proceed directly to the quantitative impairment test. In performing the quantitative analysis, the Company compares the fair value of the reporting unit with its carrying amount, including goodwill. Fair value for each reporting unit is determined by estimating the present value of expected future cash flows, which are forecasted for each of the next ten years , applying a long-term growth rate to the final year, discounted using the applicable discount rate. If the fair value of the Company’s reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not impaired. If the carrying amount of the Company’s reporting unit exceeds its fair value, the Company would recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, up to the amount of goodwill allocated to that reporting unit. The Company performed a quantitative assessment in the 2023 and 2022 annual impairment reviews as of October 1, 2023 and 2022, respectively. No goodwill impairment charges were recorded in the years ended December 31, 2023, 2022, or 2021. The Company tests certain trade names that are determined to be indefinite-lived intangible assets by comparing the fair value of the trade names with their carrying value. The Company estimates the fair value by estimating the total revenue attributable to the trade names and applying market-derived royalty rates for guideline intangible assets, consistent with the initial valuation of the intangibles. No impairment losses were recorded in the years ended December 31, 2023, 2022 or 2021 in relation to these intangible assets. Intangible assets that are separable from goodwill and have determinable useful lives are valued separately and are amortized over the estimated period benefited, generally ranging from 2 to 17 years. Intangible assets related to parent relationships are amortized using an accelerated method over their useful lives. All other intangible assets are amortized on a straight-line basis over their useful lives. Impairment of Long-Lived Assets — The Company reviews long-lived assets, including definite-lived intangible assets, for possible impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Impairment is assessed by comparing the carrying amounts of the assets in the asset group to the estimated undiscounted future cash flows expected to be generated over the remaining useful lives of the asset group. If the estimated cash flows are less than the carrying amounts of the assets, an impairment loss is recognized to reduce the carrying amounts of the assets to their estimated fair value. The impairment is allocated to the long-lived assets in the asset group on a pro rata basis using the relative carrying amounts, but only to the extent the carrying amount of an asset is above its fair value. The determination of fair value for leased assets includes consideration of market rates and what market participants would pay to use the assets. In connection with the optimization of our portfolio of centers, the Company continues to monitor and respond to changing conditions and the changing needs of clients and families, including the routine closure of underperforming centers. As a result of this process, during the years ended December 31, 2023, 2022 and 2021, the Company reviewed long-lived assets, noting that certain asset groups were not recoverable, and recognized impairment losses of $ 35.9 million, $ 14.1 million and $ 10.6 million, respectively, on fixed assets and operating lease right-of-use assets for locations where the carrying amount exceeded the fair value. Refer to Note 14, Fair Value Measurements , for additional information. Revenue Recognition — The Company generates revenue from services based on the nature of the promise and the consideration specified in contracts with customers. At contract inception, the Company assesses the services promised in the contract and identifies each distinct performance obligation. The transaction price of a contract is allocated to each distinct performance obligation using the relative stand-alone selling price and recognized as revenue when, or as, control of the service is passed to the customer. The application of these policies to the services provided by each of the Company’s segments is discussed below. 61 Table of Contents Full Service Center-Based Child Care The Company’s full service center-based child care includes traditional center-based early education and child care, preschool, and elementary education. The Company provides its center-based child care services under two principal business models: (1) a cost-plus model, where the Company is paid a fee by an employer client for managing a child care center on a cost-plus basis, and (2) a profit and loss (“P&L”) model, where the Company assumes the financial risk of operating a child care center and provides care on either an exclusive or priority enrollment basis to the employees of an employer sponsor, as well as to families in the surrounding community. In both the cost-plus and sponsor P&L models, the employer sponsor retains responsibility for the development of a new child care center (which is generally owned or leased by the sponsor), as well as ongoing maintenance and repairs. In addition, employer sponsors typically provide subsidies for the ongoing provision of child care services to their employees. Under all model types, the Company retains responsibility for all aspects of operating the child care center, including the hiring, training, supervising and compensating of employees, contracting with vendors, purchasing supplies, and collecting tuition and related accounts receivable. Revenue generated from full service center-based child care services is primarily comprised of monthly tuition paid by parents. Tuition is determined based on the age and developmental level of the child, the child’s attendance schedule, and geographic location of the facility. The full service child care offering provided to parents represents a series of distinct services that are substantially the same and have the same pattern of transfer to the customer over time, which transfers daily. The tuition paid by parents is recognized on a daily basis, but for convenience is recorded on a monthly basis. The Company enters 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 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. Annual escalators are generally stated as a percentage or as a reference to a consumer price index. The contracts also generally include a termination right with a notice period. The Company allocates revenue for contracts with an accounting term in excess of one year to the applicable contract year based on the rates applicable for that annual period, which is commensurate with the expected increases to the cost of providing the service, the Company’s standard pricing practices, as well as the overall allocation objective described in the accounting guidance. Services provided to the employer sponsor represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer over time, which transfers daily. Fees paid by the employer sponsor are recognized on a daily basis, but for convenience are recorded on a monthly basis (i.e., the same monthly amount within the contract year using the time elapsed method). Certain arrangements provide that the employer sponsor pay operating subsidies in lieu of, or to supplement, parent tuition. The employer subsidy for cost-plus managed centers, which consists of variable consideration, is typically calculated as the difference between parent tuition revenue and the operating costs for the center for each respective month and is recognized as revenue in the month the services are provided. The variable consideration relates specifically to efforts to transfer each distinct daily service and the allocation of the consideration earned to that distinct day in which those activities are performed is consistent with the overall allocation objective. 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, tutoring, pet care and self-sourced reimbursed care. The Company provides back-up care services through the Company’s early education and child care centers, school-age camps and in-home care providers, as well as through the back-up care network and through other providers. Bright Horizons back-up care offers access to a contracted network of in-home service agencies and center-based providers in locations where the Company does not otherwise have in-home care providers or centers with available capacity, to a network of tutoring service providers and to 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. 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. These arrangements generally have contractual terms of three years with varying terms and renewal and cancellation options. Fees for back-up care services are typically determined based on the number of back-up uses purchased, which may be fixed based on a specified number of uses or variable paid per use, and are generally billed monthly as services are rendered or in advance. Revenue for back-up care services is generally recognized over time as the services are performed and is recognized in the month the back-up services are provided. Allocation of the consideration earned as the service is performed is consistent with the overall allocation objective. 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 the Company is acting as an agent, and is recognized in the month the transactions are processed. 62 Table of Contents Educational Advisory and Other Services The Company’s 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. These arrangements generally have contractual terms of three years with varying terms and renewal and cancellation options. Fees for educational advisory services are determined based on the expected number of program participants and the services selected, and are generally billed in advance. 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 transaction processed and is recorded on a net basis as the Company is acting as an 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. Revenue is primarily generated from subscriptions, comprised of fixed fees for the subscription period and, to a lesser extent, variable transaction fees collected from users at the point of service. 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. In fiscal year 2024, the Company realigned its 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. Significant Judgments and Estimates The Company generally does not have significant judgments or estimates that significantly affect the determination of the amount, the allocation of the transaction price to performance obligations, or timing of revenue from contracts with customers. The nature of the Company’s services does not require significant judgment or estimates to determine when control transfers to the customer. Based on past practices and customer specific circumstances, the Company occasionally may grant concessions that impact the total transaction price. If the transaction price may be subject to adjustment, significant judgment may be required to ensure that it is probable that significant reversal in the amount of cumulative revenue recognized will not occur. As of December 31, 2023 and 2022, there were no material estimates related to the constraint of cumulative revenue recognized. Deferred Revenue — The Company’s payment terms vary by the type of services offered. Tuition collected from parents is typically billed and collected monthly in advance. Fees collected from employer sponsors may be billed annually or quarterly in advance or may be billed monthly in arrears. The Company’s standard payment terms generally align with the timing of the services performed and do not include a financing component. The Company records deferred revenue when payments are received in advance of the Company’s performance under the contract, which is recognized as revenue as the performance obligation is satisfied. The Company has the unconditional right to consideration as it satisfies the performance obligations, therefore no contractual assets are recognized. Leases — The Company has operating leases for certain of its full service and back-up early education and child care centers, corporate offices, call centers, and to a lesser extent, various office equipment, in the United States, the United Kingdom, the Netherlands, and Australia. Most of the leases expire within 10 to 15 years and many contain renewal options and/or termination provisions. As of December 31, 2023 and 2022, there were no material finance leases. 63 Table of Contents At contract inception, the Company reviews the terms to determine if an arrangement is a lease. At lease commencement, the Company determines whether those lease obligations are operating or finance leases and lease liabilities are recognized on the consolidated balance sheet based on the present value of the unpaid lease payments. The present value of the unpaid lease payments is calculated using the Company’s incremental borrowing rate. Lease commencement occurs on the date the Company takes possession or control of the property or equipment. Leases may contain fixed and variable payment arrangements. Variable lease payments may be based on an index or rate, such as consumer price indices, and include rent escalations or market adjustment provisions. Lease payments used to measure lease liabilities include fixed lease payments as well as variable payments that depend on an index or rate based on the applicable index or rate at the lease commencement date. Lease assets are initially measured as the amount of the initial lease liability, adjusted for initial direct costs, lease payments made at or before the commencement date, and reduced by lease incentives received, such as tenant improvement allowances. The Company does not include options to renew or terminate the lease in the determination of lease assets and lease liabilities until it is reasonably certain that the option will be exercised based on management’s assessment of various relevant factors including economic, entity-specific, and market-based factors, among others. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments, including those related to changes in the commencement date index or rate, are expensed as incurred. Lease expense is recognized to cost of services and selling, general and administrative expenses in the consolidated statement of income. The Company’s leases generally do not provide an implicit interest rate. Therefore, the Company uses an estimate of its incremental borrowing rate, based on the lease terms and economic environment at commencement date, in determining the present value of future payments. The Company has real estate leases that contain lease and non-lease components and has elected to account for lease and non-lease components in a contract as a single lease component. The non-lease components typically consist of common-area maintenance and utility costs. Fixed payments for non-lease components are considered part of the single lease component and included in the determination of the lease assets and lease liabilities, and variable payments are expensed as incurred. Additionally, lease contracts typically include other costs that do not transfer a separate good or service, such as reimbursement for real estate taxes and insurance, which are expensed as incurred as variable lease costs. For leases with a term of one year or less (“short-term leases”), the Company elected to not recognize the arrangements on the balance sheet and the lease payments are recognized in the consolidated statement of income on a straight-line basis over the lease term. The Company subleases certain properties that are not used in its operations. The Company’s lease agreements do not contain material restrictive covenants. Equity Method Investments — The Company accounts for its investments in entities over which the Company has significant influence, but not control, using the equity method of accounting. Under the equity method of accounting, the investment is adjusted to reflect Bright Horizons’ proportionate share of the investees’ net earnings or losses, and is reduced by the amortization of embedded intangible assets. The Company reviews the equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company accounts for its interests in a provider of full service center-based child care and back-up care services in Germany and a provider of early education and tutoring in the Netherlands using the equity method. The equity method investments are included in other assets on the consolidated balance sheet and, as of December 31, 2023 and 2022, the investment balance was $ 9.4 million and $ 7.2 million, respectively. The impact on the results of operations was immaterial for the years ended December 31, 2023, 2022 and 2021. Debt Securities — The Company’s investments in debt securities, which are classified as available-for-sale, consist of U.S. Treasury and U.S. government agency securities and certificates of deposits. These securities are held in escrow by the Company’s wholly-owned captive insurance company and were purchased with restricted cash. As such, these securities are not available to fund the Company’s operations. These securities are recorded at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income or loss. Refer to Note 14, Fair Value Measurements , for additional information on the Company’s investments in debt securities. Other Investments — The Company’s investments in equity securities are primarily in limited partnerships. The equity investments without readily determinable fair value are measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions. The Company reviews such equity investments for impairment whenever events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable. As of December 31, 2023 and 2022, the equity investments were $ 5.5 million and $ 5.1 million, respectively, which were recorded in other assets on the consolidated balance sheet. Refer to Note 9, Other Assets , for additional information on the Company’s investments in equity securities. 64 Table of Contents Discount on Long-Term Debt and Deferred Financing Costs — Original issue discounts on the Company’s debt and deferred financing costs are recorded as a reduction of long-term debt and are amortized over the life of the related debt instruments in accordance with the effective interest method. Amortization expense is included in interest expense in the consolidated statement of income. Income Taxes — The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax carryforwards, such as net operating losses. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the provision for income taxes in the period that includes the enactment date. The Company records a valuation allowance to reduce the carrying amount of deferred tax assets if it is more likely than not that such asset will not be realized. Additional income tax expense is recognized as a result of recording valuation allowances. The Company does not recognize a tax benefit on losses in foreign operations where it does not have a history of profitability. Obligations for uncertain tax positions are recorded based on an assessment of whether the position is more likely than not to be sustained by the taxing authorities. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. Stock-Based Compensation — The Company accounts for stock-based compensation using a fair value method. Stock-based compensation expense is recognized in the consolidated financial statements based on the grant-date fair value of the awards that are expected to vest. This expense is recognized on a straight-line basis over the requisite service period, which generally represents the vesting period of each separately vesting tranche. The Company calculates the fair value of stock options using the Black-Scholes option-pricing model. The fair value of restricted stock, restricted stock units and performance restricted stock units is based on their intrinsic value on the date of grant. Excess (shortfall) tax benefits (expense) associated with stock-based compensation are recognized as a component of income tax expense. Comprehensive Income or Loss — Comprehensive income or loss is comprised of net income or loss, foreign currency translation adjustments, and unrealized gains or losses on cash flow hedges and investments, net of tax. The Company has not recorded a deferred tax liability related to state income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries that are intended to be indefinitely reinvested. Therefore, taxes are not provided for the related currency translation adjustments. Earnings Per Share — Earnings per share is calculated using the two-class method, which requires the allocation of earnings to each class of common stock outstanding and to unvested participating shares. Unvested participating shares are unvested stock-based payment awards of restricted stock that participate equally in dividends with common stock, but do not participate in losses. Net income available to stockholders is allocated on a pro rata basis to each class of common stock outstanding and to unvested participating shares as if all of the earnings for the period had been distributed. Basic earnings per share is calculated by dividing the allocated net income by the weighted-average common shares outstanding. Diluted earnings per share is calculated by dividing net income by the weighted-average common shares and potentially dilutive securities outstanding during the period using the more dilutive of the treasury stock method or the two-class method. Government Support — The Company has participated in certain government support programs that were enacted in response to the economic impact of the COVID-19 pandemic. With the expiration of the child care stabilization grants on September 30, 2023, most of the pandemic-related government support programs for which the Company was eligible ended in 2023. The Company has applied the accounting principles within the International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance , (“IAS 20”) framework to account for government grants received, which are recognized when there is reasonable assurance that the Company will (1) comply with the conditions associated with the grant and (2) receive the grant. Reasonable assurance is generally the same threshold as “probable” as defined in ASC 450, Contingencies , (i.e. “likely to occur”). When the Company has met the reasonable assurance threshold, it applies IAS 20 by recognizing governmental support received in the consolidated statement of income as a reduction to the related expenses that the assistance is intended to defray. Amounts received for tuition support are recognized as revenue if such payments are made on behalf of the customers. During the years ended December 31, 2023, 2022, and 2021, funding received from pandemic-related government support programs reduced center cost of services by $ 49.4 million, $ 86.8 million, and $ 50.9 million, respectively, of which $ 17.5 million, $ 31.7 million and $ 16.0 million, respectively, reduced the operating subsidies paid by employers for the related child care centers. 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. 65 Table of Contents 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. 3. REVENUE RECOGNITION Disaggregation of Revenue The Company disaggregates revenue from contracts with customers into segments and geographical regions. Revenue disaggregated by segment and geographical region was as follows: Full service center-based child care Back-up care Educational advisory and other services Total (In thousands) Year ended December 31, 2023 North America $ 1,165,554 $ 473,749 $ 121,234 $ 1,760,537 International 615,061 42,659 — 657,720 $ 1,780,615 $ 516,408 $ 121,234 $ 2,418,257 Year ended December 31, 2022 North America $ 1,002,406 $ 381,849 $ 117,175 $ 1,501,430 International 491,352 27,705 — 519,057 $ 1,493,758 $ 409,554 $ 117,175 $ 2,020,487 Year ended December 31, 2021 North America $ 859,237 $ 326,870 $ 106,996 $ 1,293,103 International 437,971 24,233 — 462,204 $ 1,297,208 $ 351,103 $ 106,996 $ 1,755,307 The classification “North America” is comprised of the Company’s operations in the United States (including Puerto Rico) and the classification “International” includes the Company’s operations in the United Kingdom, the Netherlands, Australia and India. Revenue in the United States was substantially all of the revenue in North America. Revenue in the United Kingdom was $ 368.5 million in 2023, $ 325.8 million in 2022, and $ 334.9 million in 2021. Revenue associated with each of the other countries in which the Company operates was less than 10% of total revenue. On July 1, 2022, the Company acquired Only About Children, an operator of 75 child care centers in Australia. Refer to Note 5, Acquisitions , for additional information. Deferred Revenue The Company records deferred revenue when payments are received in advance of the Company’s performance under the contract, which is recognized as revenue as the performance obligation is satisfied. The Company recognized $ 220.1 million, $ 254.2 million and $ 187.1 million as revenue in the years ended December 31, 2023, 2022 and 2021, respectively, which was included in the deferred revenue balance at the beginning of each respective year. There were no significant changes in deferred revenue during the years ended December 31, 2023, 2022 and 2021 related to business combinations, impairments, cumulative catch-up or other adjustments other than related to the opening balance sheet for the Only About Children acquisition. Refer to Note 5, Acquisitions , for additional information. Remaining Performance Obligations The Company does not disclose the value of unsatisfied performance obligations for contracts with an original contract term of one year or less, or for variable consideration allocated to the unsatisfied performance obligation of a series of services. The transaction price allocated to the remaining performance obligations relates to services that are paid or invoiced in advance. The Company’s remaining performance obligations not subject to the practical expedients were not material at December 31, 2023. 66 Table of Contents 4. LEASES Lease Expense The components of lease expense were as follows: Years ended December 31, 2023 2022 2021 (In thousands) Operating lease expense (1) $ 173,549 $ 143,234 $ 135,318 Variable lease expense (1) 43,419 40,522 31,926 Total lease expense $ 216,968 $ 183,756 $ 167,244 (1) Excludes short-term lease expense and sublease income, which were immaterial for the periods presented. Operating lease expense for the years ended December 31, 2023, 2022 and 2021 includes impairment losses on operating lease right-of-use assets of $ 21.0 million, $ 2.8 million, and $ 1.3 million, respectively. Refer to Note 14, Fair Value Measurements , for additional information. Other Information The weighted average remaining lease term and the weighted average discount rate were as follows: December 31, 2023 2022 Weighted average remaining lease term (in years) 10 10 Weighted average discount rate 7.1 % 6.7 % Maturity of Lease Liabilities The following table summarizes the maturity of lease liabilities as of December 31, 2023: Operating Leases (In thousands) 2024 $ 146,683 2025 149,384 2026 142,160 2027 132,660 2028 121,602 Thereafter 586,700 Total lease payments 1,279,189 Less imputed interest ( 382,101 ) Present value of lease liabilities 897,088 Less current portion of operating lease liabilities ( 100,387 ) Long-term operating lease liabilities $ 796,701 As of December 31, 2023, the Company had entered into additional operating leases that have not yet commenced with total fixed payment obligations of $ 18.7 million. The leases are expected to commence in fiscal 2024 and have initial lease terms of approximately 12 to 15 years. 67 Table of Contents 5. ACQUISITIONS The Company’s growth strategy includes expansion through strategic and synergistic acquisitions. The goodwill resulting from these acquisitions arises largely from synergies expected from combining the operations of the businesses acquired with the Company's existing operations, including cost efficiencies and leveraging existing client relationships, as well as from benefits derived from gaining the related assembled workforce. 2023 Acquisitions During the year ended December 31, 2023, the Company acquired four centers in the United States and six centers in Australia, in five separate business acquisitions, which were each accounted for as a business combination. The businesses were acquired for aggregate cash consideration of $ 39.5 million, which is subject to adjustments from the settlement of the final working capital and acquired enrollment. The Company recorded goodwill of $ 37.2 million related to the full service center-based child care segment in relation to these acquisitions, of which $ 25.5 million will be deductible for tax purposes. In addition, the Company recorded intangible assets of $ 4.0 million that will be amortized over four years . The determination and allocation of purchase price consideration is based on preliminary estimates of fair value; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of December 31, 2023, the purchase price allocations for these acquisitions remain open as the Company gathers additional information regarding the assets acquired and the liabilities assumed. The operating results for the acquired businesses are included in the consolidated results of operations from the date of acquisition, and were not material to the Company’s financial results. During the year ended December 31, 2023, the Company paid contingent consideration of $ 0.2 million related to an acquisition completed in 2021, which had been recorded as a liability at the date of acquisition and is presented as cash used in financing activities in the consolidated statement of cash flows. 2022 Acquisitions Only About Children On July 1, 2022, the Company, through wholly-owned subsidiaries, completed the acquisition of the outstanding shares of Only About Children, a child care operator in Australia with approximately 75 early education and child care centers, for aggregate consideration of AUD$ 450 million (USD$ 310 million), which was accounted for as a business combination. The Company paid approximately AUD$ 300 million (USD$ 207 million), net of cash acquired and subject to customary purchase price adjustments, and paid an additional USD$ 106.5 million 18 months after closing, in January 2024, in accordance with the terms of the purchase agreement. In the fourth quarter of 2022, the Company reached an agreement with the sellers on the final net working capital acquired, resulting in a refund of AUD$ 2.6 million (USD$ 1.8 million). During the year ended December 31, 2022, the Company incurred acquisition-related transaction costs of approximately $ 9.2 million, which were included in selling, general and administrative expenses. In addition, the Company recognized realized losses of $ 5.9 million in relation to foreign currency forward contracts for the purchase of Australian dollars entered into in connection with the acquisition. Refer to Note 12, Credit Arrangements and Debt Obligations, for additional information on the foreign currency forward contracts. 68 Table of Contents The purchase price for this acquisition has been allocated based on estimates of the fair values of the acquired assets and assumed liabilities at the date of acquisition as follows: At acquisition date as reported September 30, 2022 Measurement period adjustments At acquisition date as reported September 30, 2023 (In thousands) Cash $ 4,705 $ — $ 4,705 Accounts receivable and prepaid expenses 4,295 ( 54 ) 4,241 Fixed assets 21,702 ( 1,850 ) 19,852 Goodwill 283,466 4,398 287,864 Intangible assets 30,945 ( 3,377 ) 27,568 Operating lease right of use assets 156,678 ( 4,408 ) 152,270 Total assets acquired 501,791 ( 5,291 ) 496,500 Accounts payable and accrued expenses 17,991 772 18,763 Deferred revenue and parent deposits 6,809 62 6,871 Deferred tax liabilities 3,392 ( 3,392 ) — Operating lease liabilities 161,405 ( 1,715 ) 159,690 Other long-term liabilities 5,458 ( 1,018 ) 4,440 Total liabilities assumed 195,055 ( 5,291 ) 189,764 Purchase price $ 306,736 $ — $ 306,736 The Company recorded goodwill of $ 287.9 million related to the full service center-based child care segment, which will not be deductible for tax purposes. Intangible assets consist of customer relationships of $ 19.7 million with a 6 year life and trade names of $ 7.9 million with an 11 year life. The operating results for Only About Children are included in the consolidated results of operations from the date of acquisition, and are reported with the full service center-based child care segment. The following table presents consolidated pro forma revenue as if the acquisition of Only About Children had occurred on January 1, 2021: Pro forma (Unaudited) Year ended December 31, 2022 (In thousands) Revenue $ 2,089,404 Other than the impact of shifting the transaction costs incurred in 2022 to 2021, consolidated pro forma net income would not materially change from the reported results. In assessing the impact to the unaudited pro forma results we considered certain adjustments related to the acquisition, such as increased amortization expense related to the acquired intangible assets, adjusted depreciation associated with the fair value of the acquired fixed assets, and shifting of transaction costs. Other 2022 Acquisitions During the year ended December 31, 2022, the Company acquired one center in the United States, one center in the United Kingdom, and one center in the Netherlands, in three separate business acquisitions, which were each accounted for as a business combination. These businesses were acquired for aggregate cash consideration of $ 6.0 million, net of cash acquired of $ 0.2 million, and consideration payable of $ 0.2 million. The Company recorded goodwill of $ 5.6 million related to the full service center-based child care segment, of which $ 1.9 million will be deductible for tax purposes. In addition, the Company recorded intangible assets of $ 1.0 million that will be amortized over four years in relation to these acquisitions. During the year ended December 31, 2022, the Company paid contingent consideration of $ 19.1 million related to an acquisition completed in 2019 and contingent consideration of $ 0.2 million related to an acquisition completed in 2021. Of the total amounts paid of $ 19.3 million, $ 13.9 million had been recorded as a liability at the date of acquisition and was presented as cash used in financing activities in the consolidated statement of cash flows with remaining amounts reflected as cash used in operating activities. 69 Table of Contents 2021 Acquisitions During the year ended December 31, 2021, the Company acquired 2 centers as well as a school-age camp provider in the United States, 13 centers in the United Kingdom, and 3 centers in the Netherlands, in 5 separate business acquisitions, which were each accounted for as a business combination. These businesses were acquired for aggregate cash consideration of $ 53.2 million, net of cash acquired of $ 2.2 million, and consideration payable of $ 0.6 million. Additionally, the Company is subject to contingent consideration payments for two of these acquisitions, and recorded a preliminary fair value estimate of $ 7.3 million in relation to these contingent consideration arrangements at acquisition. Contingent consideration of up to $ 1.2 million may be payable within one year from the date of acquisition if certain performance targets are met for one of the acquisitions, and contingent consideration is payable in 2026 based on certain financial metrics for the other acquisition. The Company recorded goodwill of $ 39.5 million related to the full service center-based child care segment, of which $ 3.4 million will be deductible for tax purposes, and $ 14.6 million related to the back-up care segment, all of which will be deductible for tax purposes. In addition, the Company recorded intangible assets of $ 5.7 million that will be amortized over five years , as well as fixed assets of $ 10.1 million in relation to these acquisitions. During the year ended December 31, 2021, the Company paid $ 0.6 million for contingent consideration related to acquisitions completed in 2021, which had been recorded as a liability at the date of acquisition. 6. GOODWILL AND INTANGIBLE ASSETS The changes in the carrying amount of goodwill were as follows: Full service center-based child care Back-up care Educational advisory and other services Total (In thousands) Balance at January 1, 2022 $ 1,233,096 $ 208,786 $ 39,843 $ 1,481,725 Additions from acquisitions 292,237 — — 292,237 Adjustments to prior year acquisitions 578 — — 578 Effect of foreign currency translation ( 43,975 ) ( 2,713 ) — ( 46,688 ) Balance at December 31, 2022 1,481,936 206,073 39,843 1,727,852 Additions from acquisitions 37,248 — — 37,248 Adjustments to prior year acquisitions 1,202 — — 1,202 Effect of foreign currency translation 18,878 1,225 — 20,103 Balance at December 31, 2023 $ 1,539,264 $ 207,298 $ 39,843 $ 1,786,405 The Company also has intangible assets, which consisted of the following at December 31, 2023 and 2022: December 31, 2023: Weighted average amortization period Cost Accumulated amortization Net carrying amount (In thousands) Definite-lived intangible assets: Customer relationships 11 years $ 397,079 $ ( 368,963 ) $ 28,116 Trade names 10 years 19,664 ( 11,795 ) 7,869 416,743 ( 380,758 ) 35,985 Indefinite-lived intangible assets: Trade names N/A 180,591 — 180,591 $ 597,334 $ ( 380,758 ) $ 216,576 70 Table of Contents December 31, 2022: Weighted average amortization period Cost Accumulated amortization Net carrying amount (In thousands) Definite-lived intangible assets: Customer relationships 12 years $ 398,238 $ ( 341,918 ) $ 56,320 Trade names 10 years 19,231 ( 10,236 ) 8,995 417,469 ( 352,154 ) 65,315 Indefinite-lived intangible assets: Trade names N/A 180,259 — 180,259 $ 597,728 $ ( 352,154 ) $ 245,574 The Company recorded amortization expense of $ 33.4 million, $ 31.9 million and $ 29.2 million in the years ended December 31, 2023, 2022, and 2021, respectively. The Company estimates that it will record amortization expense related to intangible assets existing as of December 31, 2023 as follows: Estimated amortization expense (In thousands) 2024 $ 18,020 2025 5,910 2026 4,169 2027 3,010 2028 1,671 Thereafter 3,205 $ 35,985 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consisted of the following: December 31, 2023 2022 (In thousands) Investments in available-for-sale debt securities $ 22,005 $ 17,701 Restricted cash 15,756 3,512 Prepaid software and licenses 12,911 9,272 Prepaid insurance 7,649 7,386 Prepaid rent and other occupancy costs 6,846 4,411 Prepaid income taxes 6,049 9,035 Interest rate cap derivatives — 25,464 Other prepaid expenses and current assets 22,405 17,535 $ 93,621 $ 94,316 A portion of the Company’s interest rate cap derivatives matured in 2023. Refer to Note 12, Credit Arrangements and Debt Obligations, for additional information on derivatives. 71 Table of Contents 8. FIXED ASSETS Fixed assets consisted of the following: December 31, Estimated useful lives 2023 2022 (In years) (In thousands) Buildings 20 - 40 $ 201,718 $ 193,406 Furniture, equipment and software 3 - 10 326,542 291,419 Leasehold improvements Shorter of the lease term or the estimated useful life 569,494 552,722 Land — 96,237 91,872 Total fixed assets 1,193,991 1,129,419 Accumulated depreciation ( 614,695 ) ( 557,948 ) Fixed assets — net $ 579,296 $ 571,471 Fixed assets included construction in progress of $ 26.0 million and $ 17.1 million at December 31, 2023 and 2022, respectively, which was primarily comprised of leasehold improvements. The Company recorded depreciation expense of $ 77.3 million, $ 74.2 million and $ 79.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. During the years ended December 31, 2023, 2022 and 2021, the Company recognized impairment losses of $ 14.9 million, $ 11.3 million, and $ 9.3 million, respectively, related to fixed assets. Refer to Note 14, Fair Value Measurements , for additional information. 9. OTHER ASSETS Other assets consisted of the following: December 31, 2023 2022 (In thousands) Interest rate cap derivatives $ 28,968 $ 28,553 Deferred compensation 18,477 15,955 Prepaid workers compensation 16,598 13,084 Equity-method investments 9,359 7,165 Investments in equity securities 5,465 5,080 Restricted cash 2,127 12,158 Investments in available-for-sale debt securities 1,859 11,858 Other assets 9,412 10,783 $ 92,265 $ 104,636 Restricted cash relates to letters of credit outstanding used to guarantee certain lease arrangements. During the year ended December 31, 2023, certain cash-backed letters of credit were replaced with letters of credit under our revolving credit facility releasing the cash from restrictions. 72 Table of Contents 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following: December 31, 2023 2022 (In thousands) Accrued payroll and employee benefits $ 125,867 $ 105,684 Accounts payable 24,803 24,648 Accrued insurance liabilities 22,381 18,152 Accrued provider fees 22,295 18,912 Accrued occupancy costs 11,009 11,732 Other accrued expenses 52,722 51,506 $ 259,077 $ 230,634 Accrued insurance primarily consisted of reserves for claims associated with workers’ compensation and general liability. 11. OTHER CURRENT LIABILITIES Other current liabilities consisted of the following: December 31, 2023 2022 (In thousands) Deferred consideration payable for acquisitions $ 106,500 $ 100,610 Customer amounts on deposit 29,025 23,000 Liability for unvested restricted stock 6,488 7,211 Other current liabilities 6,565 7,753 $ 148,578 $ 138,574 At December 31, 2023 and 2022, the Company had deferred consideration payable related to the acquisition of Only About Children, which was completed on July 1, 2022. These amounts were paid in January 2024, 18 months after the closing date of the acquisition in accordance with the terms of the purchase agreement. Refer to Note 5, Acquisitions , for additional information. 12. CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS Senior Secured Credit Facilities The Company’s senior secured credit facilities consist of a $ 600 million term loan B facility (“term loan B”) and a $ 400 million term loan A facility (“term loan A”), collectively the “term loan facilities” or “term loans,” as well as a $ 400 million multi-currency revolving credit facility (“revolving credit facility”). Long-term debt obligations were as follows: December 31, 2023 2022 (In thousands) Term loan B $ 588,000 $ 594,000 Term loan A 380,000 390,000 Deferred financing costs and original issue discount ( 5,236 ) ( 6,419 ) Total debt 962,764 977,581 Less current maturities ( 18,500 ) ( 16,000 ) Long-term debt $ 944,264 $ 961,581 73 Table of Contents On November 23, 2021, the Company amended its existing senior secured credit facilities to refinance the existing secured term loan facility with a new term loan B facility of $ 600 million and a new term loan A facility of $ 400 million. Proceeds of $ 1 billion from the new term loans, together with cash on hand, were used to repay $ 1.03 billion in outstanding term loans and related fees and expenses. The terms of the existing $ 400 million multi-currency revolving credit facility were not modified in the November 2021 amendment. The repayment of the existing term loan was treated as a debt extinguishment. In conjunction with the issuance of the new term loans, the Company incurred $ 7.7 million in fees that have been recorded as a reduction to long term debt and are amortized over the terms of the related debt instruments. A loss on the extinguishment of the existing term loan 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. 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, which did not alter the applicable interest rates held in effect prior to the change. The amendment was treated as a modification and the related transaction costs were expensed as incurred. All borrowings under the credit agreement are subject to variable interest. The effective interest rate for the term loans was 7.52 % and 6.49 % at December 31, 2023 and 2022, respectively, and the weighted average interest rate was 7.19 %, 3.75 %, and 2.51 % for the years ended December 31, 2023, 2022, and 2021, respectively, prior to the effects of any interest rate hedge arrangements. The effective interest rate for the revolving credit facility was 6.51 % at December 31, 2022, and there were no borrowings outstanding under the revolving credit facility at December 31, 2023. The weighted average interest rate for the revolving credit facility was 7.73 %, 4.86 %, and 3.75 % for the years ended December 31, 2023, 2022, and 2021, respectively. Term Loan B Facility 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. Borrowings under the term loan B facility bear interest at a rate per annum of 1.25 % over the base rate, or 2.25 % over the adjusted term SOFR rate. The base rate is subject to an interest rate floor of 1.50 % and the adjusted term SOFR rate is subject to an interest rate floor of 0.50 %. Term Loan A Facility The five-year term loan A matures on November 23, 2026 and requires quarterly principal payments equal to 2.5 % per annum of the original aggregate principal amount of the term loan A in each of the first three years, 5 % in the fourth year, and 7.5 % in the fifth year. The remaining principal balance is due at maturity. Borrowings under the term loan A facility bear interest at a rate per annum ranging from 0.50 % to 0.75 % over the base rate, or 1.50 % to 1.75 % over the adjusted term SOFR rate. The base rate is subject to an interest rate floor of 1.00 % and the adjusted term SOFR rate is subject to an interest rate floor of 0.00 %. Revolving Credit Facility The $ 400 million multi-currency revolving credit facility matures on May 26, 2026. At December 31, 2023, there were no borrowings outstanding under the revolving credit facility and letters of credit outstanding were $ 19.3 million, with $ 380.7 million available for borrowing. Borrowings outstanding under the revolving credit facility were $ 84.0 million and letters of credit outstanding were $ 5.2 million at December 31, 2022, with $ 310.8 million available for borrowing. In January 2024, the Company utilized the revolving credit facility, combined with available cash on hand, to pay the deferred consideration related to the July 1, 2022 acquisition of Only About Children. Refer to Note 5, Acquisitions, for additional information. 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 under the revolving credit facility. In conjunction with this credit amendment, the Company incurred $ 2.1 million in fees that have been capitalized in other assets on the consolidated balance sheet and are amortized over the contractual life of the revolving credit facility. Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 0.50 % to 0.75 % over the base rate, or 1.50 % to 1.75 % over the adjusted term SOFR rate. The base rate is subject to an interest rate floor of 1.00 % and the adjusted term SOFR rate is subject to an interest rate floor of 0.00 %. 74 Table of Contents Debt Covenants All obligations under the senior secured credit facilities are secured by substantially all the assets of the Company’s material U.S. subsidiaries. The senior secured credit facilities contain a number of covenants that, among other things and subject to certain exceptions, may restrict the ability of Bright Horizons Family Solutions LLC, the Company’s wholly-owned subsidiary, and its restricted subsidiaries, to: incur liens; make investments, loans, advances and acquisitions; incur additional indebtedness or guarantees; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; engage in transactions with affiliates; sell assets, including capital stock of the Company’s subsidiaries; alter the business conducted; enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends; and consolidate or merge. In addition, the credit agreement governing the senior secured credit facilities requires Bright Horizons Capital Corp., the Company's direct subsidiary, to be a passive holding company, subject to certain exceptions. 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 not to exceed 4.25 to 1.00. A breach of the applicable covenant is subject to certain equity cure rights. Future principal payments of long-term debt are as follows for the years ending December 31: Long-term debt (In thousands) 2024 $ 18,500 2025 28,500 2026 351,000 2027 6,000 2028 564,000 Total future principal payments $ 968,000 Derivative Financial Instruments The Company is subject to interest rate risk as all borrowings under the senior secured credit facilities are subject to variable interest rates. The Company's risk management policy permits using derivative instruments to manage interest rate and other risks. The Company uses interest rate caps to manage a portion of the risk related to changes in cash flows from interest rate movements. 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 conjunction with this amendment, and in accordance with the expedients in ASU 2020-04 and 2021-01, Reference Rate Reform (Topic 848) , the Company elected to apply the relief offered related to the change in reference rates, thereby not requiring dedesignation of the related cash flow hedging relationships. In June 2020, the Company entered into interest rate cap agreements with a total notional value of $ 800 million, designated and accounted for as cash flow hedges from inception, to provide the Company 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 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, the Company entered into additional interest rate cap agreements with a total notional value of $ 900 million designated and accounted for as cash flow hedges from inception. Interest rate cap agreements for $ 600 million, which 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 %). 75 Table of Contents The interest rate caps are recorded on the Company’s consolidated balance sheet at fair value and are classified based on the instruments’ maturity dates. The Company records gains and losses resulting from changes in the fair value of the interest rate caps to accumulated other comprehensive income or loss, inclusive of the related income tax effects. These gains and losses are subsequently reclassified into earnings and recognized to interest expense in the Company’s consolidated statement of income in the period that the hedged interest expense on the term loan facilities is recognized. The premium paid for each interest rate cap agreement was recorded as an asset and will be allocated to each of the individual hedged interest payments on the basis of their relative fair values. The change in each respective allocated fair value amount will be reclassified out of accumulated other comprehensive income when each of the hedged forecasted transactions impacts earnings and recognized to interest expense in the Company’s consolidated statement of income. During the year ended December 31, 2022, the Company entered into foreign currency forward contracts in connection with an acquisition in Australia completed on July 1, 2022. The Company entered into the foreign currency forwards to lock the purchase price in US dollars at closing and mitigate the impact of foreign currency fluctuations between signing of the definitive purchase agreement on May 3, 2022 and closing. The forward contracts had 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. The cash flows associated with the business combination do not meet the criteria to be designated and accounted for as a cash flow hedge and, as such, foreign currency gains and losses on these forwards are recorded on the consolidated statement of income. During the year ended December 31, 2022, the Company recognized realized losses of $ 5.9 million in relation to these forwards due to fluctuations in the Australian dollar. The fair value of the derivative financial instruments was as follows: December 31, Derivative financial instruments Consolidated balance sheet classification 2023 2022 (In thousands) Interest rate caps - asset Prepaid and other current assets $ — $ 25,464 Interest rate caps - asset Other assets $ 28,968 $ 28,553 The effect of the derivative financial instruments on other comprehensive income (loss) was as follows: Derivatives designated as cash flow hedging instruments Amount of gain (loss) recognized in other comprehensive income (loss) Consolidated statement of income classification Amount of net gain (loss) reclassified into earnings Total effect on other comprehensive income (loss) (In thousands) (In thousands) Year ended December 31, 2023 Cash flow hedges $ 6,320 Interest expense — net $ 30,383 $ ( 24,063 ) Income tax effect ( 1,687 ) Income tax benefit (expense) ( 8,112 ) 6,425 Net of income taxes $ 4,633 $ 22,271 $ ( 17,638 ) Year ended December 31, 2022 Cash flow hedges $ 53,191 Interest expense — net $ 7,457 $ 45,734 Income tax effect ( 14,202 ) Income tax benefit (expense) ( 2,468 ) ( 11,734 ) Net of income taxes $ 38,989 $ 4,989 $ 34,000 Year ended December 31, 2021 Cash flow hedges $ 2,604 Interest expense — net $ ( 4,930 ) $ 7,534 Income tax effect ( 695 ) Income tax benefit (expense) 1,316 ( 2,011 ) Net of income taxes $ 1,909 $ ( 3,614 ) $ 5,523 During the next 12 months, the Company estimates that a net gain of $ 15.9 million, pre-tax, will be reclassified from accumulated other comprehensive income and recorded to interest expense related to these derivative financial instruments. 76 Table of Contents 13. INCOME TAXES Income (loss) before income taxes consisted of the following: Years ended December 31, 2023 2022 2021 (In thousands) United States $ 176,261 $ 159,772 $ 121,035 Foreign ( 56,629 ) ( 47,590 ) ( 30,687 ) $ 119,632 $ 112,182 $ 90,348 The allocation of income before income taxes may fluctuate year to year due to activity within the Bright Horizons consolidated group. Included in the U.S. and foreign income (loss) before income taxes is intercompany interest. Income tax expense consisted of the following: Years ended December 31, 2023 2022 2021 (In thousands) Current income tax expense: Federal $ 39,421 $ 27,627 $ 13,240 State 14,760 10,357 5,078 Foreign 2,944 3,201 6,567 57,125 41,185 24,885 Deferred tax benefit: Federal ( 8,089 ) ( 3,193 ) ( 2,390 ) State ( 2,883 ) ( 995 ) ( 566 ) Foreign ( 744 ) ( 5,456 ) ( 2,040 ) ( 11,716 ) ( 9,644 ) ( 4,996 ) Income tax expense $ 45,409 $ 31,541 $ 19,889 The following is a reconciliation of the U.S. federal statutory rate to the effective rate on pretax income: Years ended December 31, 2023 2022 2021 (In thousands) Federal income tax expense computed at statutory rate $ 25,123 $ 23,558 $ 18,973 State income tax expense — net of federal income tax 10,041 8,008 3,140 Valuation allowance — net 8,235 3,661 ( 1,836 ) Tax credits ( 749 ) ( 899 ) ( 988 ) Permanent differences and other — net 924 ( 733 ) 3,721 Change in contingent consideration — — 1,212 Stock-based compensation 2,297 ( 1,513 ) ( 6,133 ) Change in income tax rate — — 817 Change to uncertain tax positions — net 741 ( 61 ) 438 Foreign rate differential ( 1,203 ) ( 480 ) 545 Income tax expense $ 45,409 $ 31,541 $ 19,889 The effective income tax rate for 2023 was 38.0 %. In 2023, income tax expense was increased by a total of $ 2.9 million, with $ 0.6 million in state income tax, for the net shortfall tax expense associated with the exercise or expiration of stock options and vesting of restricted stock. The effective income tax rate for 2022 was 28.1 %. In 2022, income tax expense was reduced by $ 2.0 million, net with a $ 0.5 million tax benefit in state income tax, for the net excess tax benefit associated with the exercise or expiration of stock options and vesting of restricted stock. 77 Table of Contents The effective income tax rate for 2021 was 22.0 %. Income tax expense was reduced by $ 7.8 million in 2021 for the excess tax benefits associated with the exercise of stock options and vesting of restricted stock. The Organization for Economic Cooperation and Development introduced a framework to implement a global 15% minimum corporate tax (“Pillar Two”). The European Union issued a directive to its member states to enact the Pillar Two in their local laws effective after December 2023. A number of other countries are expected to also implement similar legislation with effective dates in the future. The Company is continuing to evaluate the future impact of Pillar Two in the jurisdictions in which the Company operates. Significant components of the Company’s net deferred tax liability were as follows: December 31, 2023 2022 (In thousands) Deferred tax assets: Reserve on assets $ 398 $ 492 Net operating/capital loss carryforwards 10,239 8,340 Liabilities not yet deductible 9,996 11,966 Deferred revenue 3,020 2,963 Stock-based compensation 18,996 18,589 Operating lease liabilities 244,697 252,206 Other 4,996 5,060 Deferred tax assets 292,342 299,616 Less: valuation allowance ( 18,215 ) ( 9,980 ) Total net deferred tax assets 274,127 289,636 Deferred tax liabilities: Operating lease right-of-use assets ( 207,317 ) ( 220,324 ) Intangible assets ( 78,993 ) ( 84,469 ) Cash flow hedges ( 6,228 ) ( 12,653 ) Depreciation ( 14,744 ) ( 22,929 ) Total deferred tax liabilities ( 307,282 ) ( 340,375 ) Net deferred tax liability $ ( 33,155 ) $ ( 50,739 ) At December 31, 2023 and 2022, the Company had foreign net operating loss carryforwards of $ 35.6 million and $ 27.8 million, respectively, all of which had a valuation allowance offsetting the related deferred tax asset. These net operating losses can be carried forward indefinitely. During the year ended December 31, 2023, the Company recorded a net additional valuation allowance of $ 8.2 million on foreign deferred tax assets, resulting in an $ 18.2 million total valuation allowance. The Company assesses available positive and negative evidence to estimate if there is sufficient future taxable income (inclusive of reversing temporary differences) to recover the existing deferred tax assets. Based on the weight of evidence, the Company determined that it was more likely than not that a portion of the deferred tax assets would not be realized. During the year ended December 31, 2023, the Company released a valuation allowance of $ 0.2 million on a U.S. deferred tax asset. During the year ended December 31, 2022, the Company recorded additional valuation allowance of $ 9.7 million on foreign deferred tax assets, with $ 6.0 million recorded as part of acquisition accounting. A $ 0.2 million valuation allowance remained on U.S. deferred tax assets as of December 31, 2022. The Company considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company’s specific plans for reinvestment of those subsidiary earnings. The Company does not assert permanent reinvestment of earnings through the current year with respect to its Indian subsidiary. Where necessary, taxes resulting from foreign distributions of current and accumulated earnings, related to the state taxes and foreign withholding taxes, have been considered in the Company’s provision for income taxes. 78 Table of Contents Uncertain Tax Positions The changes in the unrecognized tax benefits were as follows: Years ended December 31, 2023 2022 2021 (In thousands) Beginning balance $ 2,084 $ 2,584 $ 2,929 Additions for tax positions of prior years 196 — 343 Settlements — ( 344 ) ( 363 ) Reductions for tax positions of prior years — — ( 55 ) Lapses of statutes of limitations — ( 156 ) ( 270 ) Ending balance $ 2,280 $ 2,084 $ 2,584 The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense, which were immaterial for each of the years ended December 31, 2023, 2022 and 2021. Total interest and penalties accrued as of December 31, 2023 was $ 2.3 million. In 2023, the Company increased unrecognized tax benefits by $ 0.2 million for a prior year domestic tax position. In 2022, the Company reduced unrecognized tax benefits by $ 0.2 million for lapse of statute of limitations, and $ 0.3 million for settlements with certain states. In 2021, the Company recorded an unrecognized tax benefit of $ 0.3 million and reduced unrecognized tax benefits by $ 0.3 million for lapse of statute of limitations, and $ 0.4 million for settlements with certain states. The total amount of unrecognized tax benefits that if recognized would affect the Company’s effective tax rate is $ 4.6 million, inclusive of interest. The unrecognized tax benefits may change over the next 12 months by $ 4.3 million. The Company and its domestic subsidiaries are subject to U.S. federal income tax as well as multiple state jurisdictions. U.S. federal income tax returns are typically subject to examination by the Internal Revenue Service (IRS) and the statute of limitations for federal income tax returns is three years. The Company’s filings for the tax years 2020 through 2022 are subject to audit based upon the federal statute of limitations. State income tax returns are generally subject to examination for a period of 3 to 4 years after filing of the respective return and the tax years from 2019 to 2022 are subject to audit. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom, the Netherlands, Australia, India and Puerto Rico. The tax returns for the Company’s subsidiaries located in foreign jurisdictions are subject to examination for periods ranging from 1 to 6 years. 14. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified using a three-level hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Company uses observable inputs where relevant and whenever possible. The three levels of the hierarchy are defined as follows: Level 1 — Fair value is derived using quoted prices from active markets for identical instruments. Level 2 — Fair value is derived using quoted prices for similar instruments from active markets or for identical or similar instruments in markets that are not active; or, fair value is based on model-derived valuations in which all significant inputs and significant value drivers are observable from active markets. Level 3 — Fair value is derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The carrying value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses approximates their fair value because of their short-term nature. Long-term Debt — The Company’s long-term debt is recorded at adjusted cost, net of original issue discounts and deferred financing costs. The fair value of the Company’s long-term debt is based on current bid prices or prices for similar instruments from active markets, which approximates carrying value. As such, the Company’s long-term debt was classified as Level 2. 79 Table of Contents Derivative Financial Instruments — The Company’s derivative financial instruments, comprised of interest rate cap agreements, are recorded at fair value and estimated using market-standard valuation models. Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs. Additionally, the fair value of the derivative financial instruments included consideration of credit risk. The Company used a potential future exposure model to estimate this credit valuation adjustment (“CVA”). The inputs to the CVA were largely based on observable market data, with the exception of certain assumptions regarding credit worthiness. As the magnitude of the CVA was not a significant component of the fair value of the derivative financial instruments, it was not considered a significant input. The fair value of the derivative financial instruments are classified as Level 2. As of December 31, 2023, the fair value of the interest rate cap agreements was $ 29.0 million, which was recorded in other assets on the consolidated balance sheet. As of December 31, 2022, the fair value of the interest rate cap agreements was $ 54.1 million, of which $ 25.5 million was recorded in prepaid expenses and other current assets and $ 28.6 million was recorded in other assets on the consolidated balance sheet. In 2022, the Company entered into foreign currency forward contracts in connection with an acquisition in Australia completed on July 1, 2022. During the year ended December 31, 2022, the Company recognized realized losses of $ 5.9 million in relation to these forwards due to fluctuations in the Australian dollar. Refer to Note 12, Credit Arrangements and Debt Obligations , for additional information on the foreign currency forward contracts. Debt Securities — The Company’s investments in debt securities, which are classified as available-for-sale, consist of U.S. Treasury and U.S. government agency securities and certificates of deposits. These securities are held in escrow by the Company’s wholly-owned captive insurance company and were purchased with restricted cash. As such, these securities are not available to fund the Company’s operations. These securities are recorded at fair value using quoted prices available in active markets and are classified as Level 1. As of December 31, 2023, the fair value of the available-for-sale debt securities was $ 23.9 million and was classified based on the instruments’ maturity dates, with $ 22.0 million included in prepaid expenses and other current assets and $ 1.9 million in other assets on the consolidated balance sheet. As of December 31, 2022, the fair value of the available-for-sale debt securities was $ 29.6 million, with $ 17.7 million included in prepaid expenses and other current assets and $ 11.9 million in other assets on the consolidated balance sheet. At December 31, 2023 and 2022, the amortized cost was $ 24.0 million and $ 29.8 million, respectively. The debt securities held at December 31, 2023 had remaining maturities ranging approximately from less than one year to two years . Unrealized gains and losses, net of tax, and realized gains and losses, on available-for-sale debt securities were immaterial for the years ended December 31, 2023, 2022 and 2021. Liabilities for Contingent Consideration — The Company is subject to contingent consideration arrangements in connection with certain business combinations. Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration payable for the related business combination and subsequent changes in fair value recorded to selling, general and administrative expenses on the Company’s consolidated statement of income. The fair value of contingent consideration was generally calculated using customary valuation models based on probability-weighted outcomes of meeting certain future performance targets and forecasted results. The key inputs to the valuations are the projections of future financial results in relation to the business and the company-specific discount rates. The Company classified the contingent consideration liabilities as a Level 3 fair value measurement due to the lack of observable inputs used in the model. During the year ended December 31, 2023, contingent consideration liabilities of $ 0.2 million were paid related to an acquisition completed in 2021. During the year ended December 31, 2022, contingent consideration liabilities of $ 19.3 million were paid related to acquisitions completed in 2019 and 2021. The contingent consideration liabilities outstanding as of December 31, 2023 and December 31, 2022 related to acquisitions that occurred in 2021. Refer to Note 5, Acquisitions , for additional information. The following table provides a roll forward of the recurring Level 3 fair value measurements: Years ended December 31, 2023 2022 (In thousands) Beginning balance $ 8,997 $ 27,474 Settlements of contingent consideration liabilities ( 225 ) ( 19,250 ) Changes in fair value 2,744 1,305 Foreign currency translation — ( 532 ) Ending balance $ 11,516 $ 8,997 80 Table of Contents Nonrecurring Fair Value Estimates — During the year ended December 31, 2023, the Company recognized impairment losses of $ 35.9 million , of which $ 14.9 million related to fixed assets and $ 21.0 million related to operating lease right-of-use assets. During the year ended December 31, 2022, the Company recognized impairment losses of $ 14.1 million , of which $ 11.3 million related to fixed assets and $ 2.8 million related to operating lease right-of-use assets. During the year ended December 31, 2021, the Company recognized impairment losses of $ 10.6 million , of which $ 9.3 million related to fixed assets and $ 1.3 million related to operating lease right-of-use assets. The impairment losses were included in cost of services on the consolidated statement of income. For the year ended December 31, 2023, $ 32.0 million was allocated to the full service center-based child care segment and $ 3.9 million was allocated to the back-up care services segment. For years ended December 31, 2022 and December 31, 2021, all impairment losses were allocated to the full service center-based child care segment. The estimated fair value of the applicable center long-lived assets was based on the fair value of the asset groups, calculated using a discounted cash flow model, with unobservable inputs. The fair value of the fixed assets was insignificant given the current and expected cash flows for the related centers and the valuation of the lease right-of-use-assets considered the amount a market participant would pay for use of the asset. The Company classified the center long-lived assets as a Level 3 fair value measurement due to the lack of observable inputs used in the model. 15. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION Preferred Stock The Company has 25 million shares of authorized undesignated preferred stock available for issuance, of which none have been issued. The Company’s board of directors has the authority, without further action by stockholders, to issue up to 25 million shares of preferred stock in one or more series. The Company’s board of directors may designate the rights, preferences, privileges, and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, and number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the Company’s common stock, diluting the voting power of its common stock, impairing the liquidation rights of its common stock, or delaying or preventing a change in control. As of December 31, 2023 and 2022, no shares of preferred stock were outstanding. Treasury Stock The board of directors of the Company authorized a share repurchase program of up to $ 400 million of the Company’s 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. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, under Rule 10b5-1 plans, or by other means in accordance with federal securities laws. The Company did not repurchase shares during the year ended December 31, 2023. At December 31, 2023, $ 198.3 million remained available under the repurchase program. During the year ended December 31, 2022, the Company repurchased 2.0 million shares for $ 182.3 million. During the year ended December 31, 2021, the Company repurchased 1.6 million shares for $ 214.1 million. Equity Incentive Plan The Company’s 2012 Omnibus Long-Term Incentive Plan, as Amended and Restated (the “Plan”), allows for the issuance of equity awards of up to 7.4 million shares of common stock. The Plan’s original authorization of 5.0 million shares was increased in 2019 by 2.4 million shares as approved by the Company’s stockholders on May 29, 2019. As of December 31, 2023, there were approximately 1.4 million shares of common stock available for grant. The equity awards that have been granted under the Plan consist of time-based stock options, restricted stock, restricted stock units, and performance restricted stock units, which are described below. Stock-Based Compensation The Company recognized the impact of stock-based compensation in its consolidated statement of income for the years ended December 31, 2023, 2022, and 2021 and did not capitalize any amounts on the consolidated balance sheet. In the years ended December 31, 2023, 2022, and 2021 the Company recorded stock-based compensation expense of $ 28.8 million, $ 28.1 million, and $ 23.1 million, respectively. Stock-based compensation expense of $ 26.5 million, $ 26.1 million, and $ 21.0 million was recorded in selling, general and administrative expenses in the years ended December 31, 2023, 2022, and 2021, respectively, and $ 2.3 million, $ 2.0 million, and $ 2.1 million was recorded in cost of services, respectively, in the consolidated statement of income in relation to all awards granted under the equity incentive plans. Stock-based compensation expense generated a deferred income tax benefit of $ 5.6 million, $ 6.5 million, and $ 5.2 million in the years ended December 31, 2023, 2022 and 2021, respectively. 81 Table of Contents For the year ended December 31, 2023, the net income tax shortfall realized from the exercise or expiration of stock options and vesting of restricted stock was $ 2.9 million. The income tax benefits realized from the exercise or expiration of stock options and vesting of restricted stock in the years ended December 31, 2022 and 2021 were $ 2.7 million, and $ 11.8 million, respectively, inclusive of net excess tax benefits realized of $ 2.0 million, and $ 7.8 million in the years ended December 31, 2022 and 2021, respectively. As of December 31, 2023, there was $ 37.2 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under the Plan. That expense is expected to be recognized over a weighted average remaining requisite service period of approximately two years . Estimated forfeitures are based on the Company’s historical forfeitures and is adjusted periodically based on actual results. There were no share-based awards classified as a liability during the year ended December 31, 2023. Stock Options Stock options granted under the Plan are subject to a service condition and generally expire in ten years from date of grant or upon termination of the holder’s employment with the Company, unless such termination was due to death, disability or retirement, or unless otherwise determined by the administrator of the Plan. Stock options are granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant, generally have a requisite service period of three or five years , and are subject to graded vesting throughout the service term. Stock-based compensation expense for stock options is based on the fair value of the award on the date of grant. The fair value of stock options granted was estimated using the Black-Scholes option pricing model and the following weighted average assumptions: Years ended December 31, 2023 2022 2021 Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock price volatility 39.0 % 35.0 % 33.7 % Risk free interest rate 4.1 % 1.9 % 0.8 % Expected life of options (years) 5.6 5.5 5.3 Weighted average fair value per share of options granted during the period $ 34.51 $ 44.25 $ 48.64 The expected dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The expected stock price volatility assumption was determined using the historical volatility of the Company’s stock price over a term equal to the expected life of the options. The risk free interest rate was based on the U.S. Treasury rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. For grants issued during the years ended December 31, 2023, 2022 and 2021, the expected life of the options was based on historical exercise behavior for similar awards, giving consideration to the contractual terms, vesting schedules, and expectations of future employee behavior. The following table summarizes the stock option activity under the Company’s equity plan for the year ended December 31, 2023: Weighted Average Remaining Contractual Life (In years) Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value (In millions) Outstanding at January 1, 2023 3.7 2,025,989 $ 126.60 Granted 86,442 80.64 Exercised ( 175,929 ) 66.95 Forfeited/Expired ( 269,942 ) 134.14 Outstanding at December 31, 2023 3.3 1,666,560 $ 129.29 $ 2.6 Exercisable at December 31, 2023 2.4 980,081 $ 125.35 $ 1.4 Vested and expected to vest at December 31, 2023 3.2 1,630,868 $ 129.21 $ 2.6 The fair value (pre-tax) of options that vested during the years ended December 31, 2023, 2022, and 2021 was $ 14.4 million, $ 12.9 million, and $ 16.6 million, respectively. The intrinsic value of options exercised during the years ended December 31, 2023, 2022, and 2021 was $ 2.8 million, $ 12.9 million, and $ 36.4 million, respectively. Cash proceeds from the exercise of stock options for the years ended December 31, 2023, 2022, and 2021 were $ 11.8 million, $ 10.1 million, and $ 30.1 million, respectively. 82 Table of Contents Restricted Stock, Restricted Stock Units, and Performance Restricted Stock Units Restricted stock awards are granted to certain senior managers at the discretion of the board of directors as allowed under the Plan. Restricted stock awards generally vest on the earliest of the third anniversary of the grant date, a change in control of the Company, or the termination of employment by reason of death or disability, and are accounted for as non-vested stock. Restricted stock is generally sold for a price equal to 50 % of the fair value of the Company’s common stock at the date of grant. Proceeds from the issuance of restricted stock are recorded as other liabilities in the consolidated balance sheet until the earlier of vesting or forfeiture of the awards. The unvested shares of restricted stock participate equally in dividends with common stock. Restricted stock is considered legally issued at the date of grant, but is not considered common stock issued and outstanding in accordance with accounting guidance until the requisite service period is fulfilled. All outstanding shares of restricted stock are expected to vest. During the year ended December 31, 2023, there were no cash proceeds from the issuance of restricted stock. Cash proceeds from the issuance of restricted stock for the years ended December 31, 2022 and 2021 were $ 3.1 million and $ 7.4 million, respectively. Stock-based compensation expense for restricted stock awards is based on the intrinsic value of the award on the date of grant. The following table summarizes the restricted stock activity under the Company’s equity plan for the year ended December 31, 2023: Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value (In millions) Non-vested restricted stock shares at January 1, 2023 237,369 $ 79.85 Vested ( 106,060 ) 74.37 Forfeited ( 7,855 ) 80.43 Non-vested restricted stock shares at December 31, 2023 123,454 $ 76.83 $ 2.7 The fair value of restricted shares vested during the years ended December 31, 2023, 2022, and 2021 was $ 7.9 million, $ 4.0 million, and $ 5.2 million, respectively. There were no restricted stock awards granted during the year ended December 31, 2023. The weighted average grant date fair value of restricted shares granted during the years ended December 31, 2022 and 2021 was $ 64.41 and $ 81.80 , respectively. Restricted stock units are awarded to certain employees as allowed under the Plan and vest within three years after the date of the award. The awards allow for the issuance of a share of the Company’s common stock for each unit upon vesting. Restricted stock units are awarded to members of the board of directors as allowed under the Plan and are vested upon award. The awards allow for the issuance of a share of the Company’s common stock for each unit upon the earliest of termination of service as a member of the board of directors or five years after the date of the award. The fair value of restricted stock unit awards is the closing market price of the Company’s common stock at the date of grant. The following table summarizes the restricted stock unit activity under the Company’s equity plan for the year ended December 31, 2023: Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value (In millions) Restricted stock units at January 1, 2023 388,522 $ 101.11 Granted 314,578 80.22 Converted ( 37,936 ) 114.79 Forfeited ( 44,242 ) 94.80 Restricted stock units at December 31, 2023 620,922 $ 90.05 $ 58.5 The weighted average grant date fair value of restricted stock units granted during the years ended December 31, 2023, 2022, and 2021 was $ 80.22 , $ 99.91 , and $ 149.09 , respectively. Performance restricted stock units are awarded to certain employees as allowed under the Plan and vest upon certain performance conditions being met. The awards allow for the issuance of a share of the Company’s common stock for each unit upon the achievement of stated performance goals, which are generally three years from the date of the award. The fair value of performance restricted stock unit awards is the closing market price of the Company’s common stock at the date of grant. 83 Table of Contents The following table summarizes the performance restricted stock unit activity under the Company’s equity plan for the year ended December 31, 2023: Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value (In millions) Performance restricted stock units at January 1, 2023 10,000 $ 148.70 Granted 32,724 79.07 Forfeited ( 10,000 ) 148.70 Performance restricted stock units at December 31, 2023 32,724 $ 79.07 $ 3.1 The weighted average grant date fair value of performance restricted stock units granted during the years ended December 31, 2023 and 2021 was $ 79.07 and $ 142.35 , respectively. There were no performance restricted stock units granted during the year ended December 31, 2022. 16. EARNINGS PER SHARE The following tables sets forth the computation of basic and diluted earnings per share using the two-class method: Years ended December 31, 2023 2022 2021 (In thousands, except share data) Basic earnings per share: Net income $ 74,223 $ 80,641 $ 70,459 Allocation of net income to common stockholders: Common stock $ 74,049 $ 80,298 $ 70,154 Unvested participating shares 174 343 305 Net income $ 74,223 $ 80,641 $ 70,459 Weighted average common shares outstanding: Common stock 57,717,102 58,344,817 60,312,690 Unvested participating shares 145,813 249,263 257,024 Earnings per common share: Common stock $ 1.28 $ 1.38 $ 1.16 Years ended December 31, 2023 2022 2021 (In thousands, except share data) Diluted earnings per share: Earnings allocated to common stock $ 74,049 $ 80,298 $ 70,154 Plus: earnings allocated to unvested participating shares 174 343 305 Less: adjusted earnings allocated to unvested participating shares ( 174 ) ( 342 ) ( 302 ) Earnings allocated to common stock $ 74,049 $ 80,299 $ 70,157 Weighted average common shares outstanding: Common stock 57,717,102 58,344,817 60,312,690 Effect of dilutive securities 215,472 145,835 558,709 Weighted average common shares outstanding — diluted 57,932,574 58,490,652 60,871,399 Earnings per common share: Common stock $ 1.28 $ 1.37 $ 1.15 Options outstanding to purchase 1.8 million, 2.0 million and 0.9 million shares of common stock were excluded from diluted earnings per share for the years ended December 31, 2023, 2022 and 2021, respectively, since their effect was anti-dilutive. These options may become dilutive in the future. 84 Table of Contents 17. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss), which is included as a component of stockholders’ equity, is comprised of foreign currency translation adjustments and unrealized gains (losses) on cash flow hedges and investments, net of tax. The changes in accumulated other comprehensive income (loss) by component were as follows: Foreign currency translation adjustments (1) Unrealized gain (loss) on cash flow hedges Unrealized gain (loss) on investments Total (In thousands) Balance at January 1, 2022 $ ( 38,073 ) $ 738 $ ( 24 ) $ ( 37,359 ) Other comprehensive income (loss) before reclassifications — net of tax ( 67,065 ) 38,989 ( 214 ) ( 28,290 ) Less: amounts reclassified from accumulated other comprehensive income (loss) — net of tax — 4,989 ( 9 ) 4,980 Net other comprehensive income (loss) ( 67,065 ) 34,000 ( 205 ) ( 33,270 ) Balance at December 31, 2022 ( 105,138 ) 34,738 ( 229 ) ( 70,629 ) Other comprehensive income (loss) before reclassifications — net of tax 29,008 4,633 9 33,650 Less: amounts reclassified from accumulated other comprehensive income — net of tax — 22,271 ( 149 ) 22,122 Net other comprehensive income (loss) 29,008 ( 17,638 ) 158 11,528 Balance at December 31, 2023 $ ( 76,130 ) $ 17,100 $ ( 71 ) $ ( 59,101 ) (1) Taxes are not provided for the currency translation adjustments related to the undistributed earnings of foreign subsidiaries that are intended to be indefinitely reinvested. 18. SEGMENT AND GEOGRAPHIC INFORMATION The Company’s reportable segments are comprised of (1) full service center-based child care, (2) back-up care, and (3) educational advisory and other services. The full service center-based child care segment includes the traditional center-based early education and child care, preschool, and elementary education. The Company’s back-up care segment 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. The Company’s educational advisory and other services segment consists of 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, which have been aggregated. The Company and its chief operating decision maker evaluate performance based on revenue and income from operations. Intercompany activity is eliminated in the segment results. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; therefore, no segment asset information is produced or included herein. In fiscal year 2024, the Company realigned its 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. 85 Table of Contents Revenue and income (loss) from operations by reportable segment were as follows: Full service center-based child care Back-up care Educational advisory and other services Total (In thousands) Year ended December 31, 2023 Revenue $ 1,780,615 $ 516,408 $ 121,234 $ 2,418,257 Income from operations (1) 9,396 133,391 28,454 171,241 Year ended December 31, 2022 Revenue $ 1,493,758 $ 409,554 $ 117,175 $ 2,020,487 Income from operations (2) 12,937 118,788 25,860 157,585 Year ended December 31, 2021 Revenue $ 1,297,208 $ 351,103 $ 106,996 $ 1,755,307 Income (loss) from operations (3) ( 8,431 ) 115,173 22,276 129,018 (1) For the year ended December 31, 2023, income from operations for the full-service center-based child care segment included $ 32.0 million of impairment losses for fixed assets and operating lease right-of-use assets and $ 1.5 million of value-added tax expense related to prior periods, and income from operations for the back-up care segment included $ 3.9 million of impairment losses for fixed assets and operating lease right-of-use assets and $ 4.0 million of value-added tax expense related to prior periods. Refer to Note 14, Fair Value Measurements , for additional information on impairment losses and Note 2, Summary of Significant Accounting Policies , for additional information on the value-added tax expense related to prior periods. (2) For the year ended December 31, 2022, income from operations for the full service center-based child care segment included $ 14.1 million of impairment losses related to fixed assets and operating lease right-of-use assets, $ 9.2 million of transaction costs related to acquisitions, and $ 1.9 million of costs incurred in relation to a cybersecurity incident. Refer to Note 14, Fair Value Measurements , for additional information on impairment losses. (3) For the year ended December 31, 2021, loss from operations for the full service center-based child care segment included $ 10.6 million of impairment losses related to fixed assets and operating lease right-of-use assets, and $ 0.6 million of transaction costs related to acquisitions. Refer to Note 14, Fair Value Measurements , for additional information on impairment losses. Refer to Note 3, Revenue Recognition , for revenue by geographic region. Fixed assets by geographic region were as follows: December 31, 2023 2022 2021 (In thousands) North America $ 319,732 $ 326,711 $ 346,030 International 259,564 244,760 252,104 Total fixed assets $ 579,296 $ 571,471 $ 598,134 The classification “North America” is comprised of the Company’s operations in the United States (including Puerto Rico) and the classification “International” includes the Company’s operations in the United Kingdom, the Netherlands, Australia and India. All of the fixed assets in North America were located in the United States, and fixed assets located in the United Kingdom were $ 201.9 million, $ 186.5 million, and $ 213.5 million at December 31, 2023, 2022, and 2021, respectively. Fixed assets associated with each of the other countries in which the Company operates were less than 10% of total fixed assets. 19. EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) Retirement Savings Plan (the “401(k) Plan”) for all eligible employees in the United States. To be eligible for the 401(k) Plan, an employee must be at least 20 years of age and have completed their eligibility period of 60 days of service from date of hire. The 401(k) Plan is funded by elective employee contributions of up to 75 % of their compensation, subject to certain limitations. Under the 401(k) Plan, the Company matches 25 % of employee contributions for each participant up to 8 % of the employee’s compensation after one year of service. Expense under the 401(k) Plan, consisting of Company contributions and plan administrative expenses paid by the Company, totaled approximately $ 5.3 million, $ 4.5 million, and $ 4.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. 86 Table of Contents The Company maintains other defined contribution and defined benefit pension plans that cover eligible employees in the United Kingdom, the Netherlands and Australia. These plans are generally funded by employee and employer contributions. Expense under these plans, including employer contributions, totaled approximately $ 21.4 million, $ 13.0 million and $ 10.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company maintains a Non-qualified Deferred Compensation Plan (the “NQDC Plan”) for eligible employees. Eligible employees are employees who have capped contribution levels in the existing 401(k) Plan due to the thresholds dictated by the IRS definition of “highly compensated” employees, as well as other employees at the Company’s discretion. The NQDC Plan is funded by elective employee contributions of up to 50 % of their base compensation and up to 100 % of other forms of compensation, as defined. Under the NQDC Plan, the Company matches 25 % of employee contributions for each participant up to $ 2,500 . The Company holds investments in company-owned life insurance policies to offset the Company’s liabilities under the NQDC Plan. Total investments included in prepaid expenses and other current assets and in other assets in the consolidated balance sheet were $ 1.6 million and $ 18.5 million, respectively, at December 31, 2023. NQDC Plan liabilities, included in other current and long-term liabilities in the consolidated balance sheet, were $ 1.5 million and $ 17.4 million at December 31, 2023, respectively. At December 31, 2022, total investments included in prepaid expenses and other current assets and in other assets in the consolidated balance sheet were $ 0.7 million, and $ 16.0 million, respectively. NQDC Plan liabilities, included in other current and long-term liabilities in the consolidated balance sheet, were $ 0.7 million and $ 16.1 million at December 31, 2022, respectively. 20. COMMITMENTS AND CONTINGENCIES Letters of Credit At December 31, 2023, t he Company had 56 letters of credit outstanding used to guarantee certain rent payments for up to $ 2.4 million. These letters of credit are secured by cash deposits, of which $ 2.1 million is included in other assets and $ 0.3 million is included in prepaid expenses and other current assets in the consolidated balance sheet. Additionally, letters of credit of $ 19.3 million reduced availability in the revolving credit facility. No amounts have been drawn against these letters of credit. Litigation The Company is a defendant in certain legal matters in the ordinary course of business and records accruals for outstanding legal matters when the Company believes it is probable that a loss has been incurred, and the amount can be reasonably estimated. The Company's accruals for outstanding legal matters are not material, individually or in the aggregate, to the Company's consolidated financial position. Management believes the resolution of such pending legal matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows, although the Company cannot predict the ultimate outcome of any such actions. Insurance and Regulatory The Company self-insures a portion of its medical insurance plans and has a high deductible workers’ compensation plan. Additionally, a portion of the general liability coverage is provided by the Company’s wholly-owned captive insurance entity. Management believes that the amounts accrued for these obligations are sufficient and that ultimate settlement of such claims or costs associated with claims made under these plans will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. The net assets of the captive insurance subsidiary were not material to the consolidated financial statements as of December 31, 2023 and 2022, respectively. The Company’s early education and child care centers are subject to numerous federal, state and local regulations and licensing requirements. Failure of a center to comply with applicable regulations can subject it to governmental sanctions, which could require expenditures by the Company to bring its early education and child care centers into compliance. 87 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.