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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-27 · 124 added, 155 removed, 289 unchanged (49% of the section changed)

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

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and generally contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates” or similar expressions.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and generally contain words such as “believes,” “expects,” “may,” “might,” “could,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “opportunity,” “continues,” “estimates,” “possible,” “potential,” “anticipates” or similar expressions.

Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied by the forward-looking statements.

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

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

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

At December 31, 2024, we operated 1,019 early education and child care centers, consisting of 599 centers in North America and 420 centers internationally.

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Consumer 7.5 —

Professional Services and Other 5.0 —

Technology 5.0 —

Professional Services and Other 5.0 —

Industrial/Manufacturing 2.5 1.0

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100.0 % 100.0 %

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

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

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

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

Educational advisory and other services includes tuition assistance and student loan repayment program management, workforce education, related educational advising, college advisory services, and Sittercity, an online marketplace for families and caregivers.

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

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

Back-up care consists of center-based back-up child care, in-home care for children and seniors, school age programs (including camps and tutoring), pet care, self-sourced reimbursed care, and Sittercity, an online marketplace for families and caregivers.

Educational advisory services includes tuition assistance and student loan repayment program management, workforce education, related educational advising, and college admissions counseling services.

Effective January 1, 2024, we realigned our organizational structure to better reflect synergies across certain business lines resulting in a change in reportable segments.

As a result, the back-up care reportable segment now includes the Sittercity operations, which were previously reported in the educational advisory and other services segment.

Segment information for 2023 has been recast to conform to the current year presentation.

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

Additional segment information is included in Note 18, Segment and Geographic Information , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

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

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

During the year ended December 31, 2024, we saw solid year-over-year revenue growth, with a 10% increase in revenue for our full service center-based child care segment and net enrollment growth of 4% as centers continue to grow enrollment.

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

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

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For the quarter ended December 31, 2024, 39% of these centers were more than 70% enrolled, 45% were between 40-70% enrolled and 16% were less than 40% enrolled, which reflects improved occupancy when compared to the same period in the prior year.

Such trends are consistent with the year to date results.

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

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

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

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

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

We also saw strong growth in back-up care with a 16% year-over-year increase in revenue as a result of increased utilization.

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

We continue to monitor and respond to the changing conditions and operating environments, and the evolving needs of clients, families and children, including the optimization of our portfolio of centers through the routine closure of underperforming centers to accommodate evolving changes in demand in the markets we serve.

As a result of changing conditions, there has been an elevated number of center closures in recent years, totaling 56 in 2024 and 49 in 2023, in addition to the impairment of certain assets.

While we continue to review the portfolio of centers and monitor workforce changes in certain markets, such as return to office policies, we expect to close fewer centers in 2025.

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

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

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

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

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

As we continue to navigate this post-pandemic recovery period, we remain committed to serving the needs of families, clients and our employees.

As we continue to navigate this dynamic operating environment, we remain committed to serving the needs of families, clients and our employees.

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

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

Our ability to continue to increase operating income in the future, will depend upon our ability to continue to regain and sustain the following characteristics of our business and our strategic growth priorities:

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

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Income from operations 246,619 9.2 % 171,241 7.1 %

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

Interest expense — net (48,761) (1.8) % (51,609) (2.2) %

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$ 203,184 7.6 % $ 164,263 6.8 %

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

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

(1) Adjusted EBITDA, adjusted income from operations and adjusted net income are financial measures that are not determined in accordance with generally accepted accounting principles in the United States (“GAAP”), which are commonly referred to as “non-GAAP financial measures.” Refer to “Non-GAAP Financial Measures and Reconciliation” below for a reconciliation of these non-GAAP financial measures to their most directly comparable financial measure determined under GAAP and for information regarding our use of non-GAAP financial measures.

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

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Back-up care 610,112 22.7 % 525,910 21.7 % 84,202 16.0 %

Educational advisory and other services 121,234 5.0 % 117,175 5.8 % 4,059 3.5 %

Educational advisory services 114,116 4.2 % 111,732 4.7 % 2,384 2.1 %

Total revenue $ 2,686,013 100.0 % $ 2,418,257 100.0 % $ 267,756 11.1 %

Revenue generated by the full service center-based child care segment in the year ended December 31, 2024 increased by $181.2 million, or 10%, when compared to the prior year.

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

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

and international markets.

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

as that geography remains more impacted.

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

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

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

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

Tuition revenue increased by $166.3 million, or 10%, when compared to the prior year, due to a 4% net increase in enrollment and average tuition rate increases at our child care centers of approximately 5%.

Fluctuations in foreign currency exchange rates for our United Kingdom, Netherlands and Australia operations also contributed to our revenue growth, increasing 2024 tuition revenue by approximately $9.2 million.

Management fees and operating subsidies from employer sponsors increased $14.9 million, or 9%, primarily due to higher operating subsidies required to support center operations as enrollment continues to increase, and due to a decrease in funding received from pandemic-related government support programs as most of the programs for which we were eligible expired in September 2023.

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

During the year ended December 31, 2023, such funding reduced the operating subsidy revenue due from employers by $17.5 million.

Revenue generated by back-up care services in the year ended December 31, 2024 increased by $84.2 million, or 16%, when compared to the prior year.

Revenue growth in the back-up care segment was primarily attributable to increased utilization of center-based, in-home and school-age camp back-up care from new and existing clients.

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

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

Revenue generated by educational advisory services in the year ended December 31, 2024 increased by $2.4 million, or 2%, when compared to the prior year.

Revenue growth in this segment was primarily attributable to increased utilization.

Cost of Services.

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Cost of services in the full service center-based child care segment increased by $143.2 million, or 9%, to $1.7 billion in the year ended December 31, 2024, when compared to the prior year.

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

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

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

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

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

As noted above, a portion of the funding received from government support programs reduced the operating costs in certain employer-sponsored centers, which in turn reduced the operating subsidy revenue due from employers for the related child care centers by $17.5 million and $31.7 million in the years ended December 31, 2023 and 2022, respectively.

The increase in cost of services was primarily associated with increased personnel costs related to expanded enrollment and wage rate increases.

Personnel costs increased 7% during the year ended December 31, 2024 compared to the same period in the prior year.

In addition to the personnel costs for the incremental 4% net enrollment increase noted above and premiums associated with the deployment of temporary staff to meet enrollment demands, we continue to invest in higher wages for our center staff, resulting in an increase of approximately 4% to the average hourly wage in 2024 compared to 2023.

Cost of services also includes impairment costs of $29.8 million in 2024 and $32.0 million in 2023, primarily related to fixed assets and operating lease right of use assets.

Additionally, most of the pandemic-related government support programs for which we were eligible ended September 2023.

Funding received from pandemic-related government support programs reduced center operating expenses by $49.4 million in the year ended December 31, 2023.

Cost of services in the back-up care segment increased by $34.9 million, or 12%, to $322.2 million in the year ended December 31, 2024, when compared to the prior year.

The increase in cost of services is primarily associated with higher care provider fees generated by the increase in utilization levels of center-based and in-home back-up care over the prior year, and continued investment in personnel, marketing and technology to support our customer user experience and service delivery.

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

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

The increase in cost of services correlates to the increase in revenue and is primarily associated with higher care provider fees generated by the increase in utilization levels of center-based and in-home back-up care over the prior year, and continued investment in personnel, marketing and technology to support our customer user experience and service offerings.

Additionally, cost of services in 2024 also includes impairment costs of $1.1 million.

Cost of services in 2023 included value-added tax expense of $4.0 million related to prior periods and impairment costs of $3.9 million related to fixed assets and operating lease right of use assets.

Cost of services in the educational advisory services segment increased by $1.8 million, or 3%, to $58.5 million in the year ended December 31, 2024, when compared to the prior year due to investments in personnel, product suite and technology to support customer access and user experience.

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

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Gross profit increased by $87.9 million, or 17%, to $619.6 million for the year ended December 31, 2024 from $531.7 million for the prior year.

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

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

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

Incremental gross profit contributions from higher utilization of back-up care services, as well as contributions from our full service center-based child care centers from enrollment growth, tuition price increases, improving operating leverage and lower impairment losses, were partially offset by reduced funding from pandemic-related government support programs.

Gross profit margin was 23% of revenue for the year ended December 31, 2024, a 1% increase compared to 22% for the year ended December 31, 2023.

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

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

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

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

SGA increased $27.5 million, or 8%, to $354.6 million for the year ended December 31, 2024 from $327.1 million for the year ended December 31, 2023, due to higher personnel costs, impairment costs of $3.0 million related to the full service center-based child care segment and a $2.3 million charge within the back-up care segment resulting from the early settlement of contingent consideration for a 2021 acquisition.

SGA was approximately 13% of revenue for the year ended December 31, 2024, consistent with 2023.

Amortization of Intangible Assets.

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

Amortization expense on intangible assets was $18.3 million for the year ended December 31, 2024, a decrease from $33.4 million in the prior year, primarily due to certain intangible assets becoming fully amortized during the period, partially offset by increases from intangible assets acquired in relation to the acquisitions completed in 2023 and 2024.

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

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Back-up care 169,611 27.8 % 135,704 25.8 % 33,907 25.0 %

Educational advisory and other services 28,454 23.5 % 25,860 22.1 % 2,594 10.0 %

Educational advisory services 23,309 20.4 % 26,141 23.4 % (2,832) (10.8) %

Income from operations $ 246,619 9.2 % $ 171,241 7.1 % $ 75,378 44.0 %

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

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

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

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

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

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

Loss on Foreign Currency Forward Contracts.

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

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

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

• Income from operations for the full service center-based child care segment increased $44.3 million, or 472%, for the year ended December 31, 2024, when compared to the same period in 2023, primarily due to increases in tuition revenue from enrollment growth and tuition rate increases, partially offset by increased personnel costs, and a decrease of approximately $34 million in net contributions from pandemic-related government support as most of the programs for which we were eligible ended by September 30, 2023.

• Income from operations for the back-up care segment increased $33.9 million, or 25%, in the year ended December 31, 2024 when compared to the same period in 2023.

Incremental contributions from the expanded utilization of back-up care services were partially offset by the related higher personnel and service provider costs.

Additionally, income from operations in 2023 included value-added tax expense of $4.0 million related to prior periods.

• Income from operations for the educational advisory services segment decreased $2.8 million, or 11%, in the year ended December 31, 2024 when compared to the same period in 2023 due to personnel, product design, and technology platform investments to support revenue growth and business transformation.

Net Interest Expense.

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

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

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

Net interest expense decreased to $48.8 million for the year ended December 31, 2024 from $51.6 million for the year ended December 31, 2023, due to lower average borrowings, lower outstanding deferred consideration from prior acquisitions, and higher interest income from invested cash balances in the current year.

The blended weighted average interest rates for the term loans and revolving credit facility were 4.88% and 4.11% for the years ended December 31, 2024 and 2023, respectively, inclusive of the effects of cash flow hedges.

Based on our current interest rate projections, we estimate that our overall weighted average interest rate will approximate 5.00% for 2025 inclusive of the effects of cash flow hedges.

Income Tax Expense.

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

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

Net shortfall tax expense increased tax expense by $1.0 million in 2024 and by $2.9 million in 2023, due to lower volume of equity transactions and less tax shortfall realized on each transaction in 2024.

Refer to Note 15, Stockholders’ Equity and Stock-based Compensation , to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional details.

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

The effective income tax rate would have approximated 27% and 28% for the years ended December 31, 2024 and 2023, respectively, prior to the inclusion of the excess (shortfall) tax benefit (expense), other discrete items, and unbenefited losses in certain foreign jurisdictions.

Adjusted EBITDA and Adjusted Income from Operations.

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

Adjusted EBITDA and adjusted income from operations increased $57.2 million, or 16%, and $65.2 million, or 31%, respectively, for the year ended December 31, 2024 over the comparable period in 2023 primarily due to the incremental gross profit contributions from the full service center-based child care segment resulting from enrollment growth and tuition price increases and from the back-up care segment resulting from increased utilization.

Adjusted Net Income.

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

Adjusted net income increased $38.9 million, or 24%, for the year ended December 31, 2024 when compared to the same period in 2023, primarily due to the increase in adjusted income from operations and lower interest expense.

Non-GAAP Financial Measures and Reconciliation

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

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

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

Years Ended December 31,

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Other costs (d)

Loss on foreign currency forward contracts (e)

Total adjustments 64,749 70,195

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Other costs (d)

Loss on foreign currency forward contracts (e)

Interest on deferred consideration (f)

Interest on deferred consideration (e)

Adjusted income before income tax 280,949 229,132

Adjusted income tax expense (g)

Adjusted income tax expense (f)

(77,765) (64,869)

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Diluted adjusted earnings per common share $ 3.47 $ 2.84

(a) Amortization of intangible assets represents amortization expense, including annual amortization expense of approximately $20 million associated with intangible assets recorded in connection with our going private transaction in May 2008.

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

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

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

(a) Amortization of intangible assets represents amortization expense, including amortization expense of approximately $8.5 million and $20.0 million for the years ended December 31, 2024 and 2023, respectively, associated with intangible assets recorded in connection with our going private transaction in May 2008.

(b) Impairment losses represent impairment costs, primarily for long-lived assets, associated with our annual impairment assessment arising from center closures, changes in market assumptions and reduced operating performance at certain centers.

For the year ended December 31, 2024, impairment losses recognized in the fourth quarter totaled $30.3 million, of which $29.2 million related to the full service center-based child care segment and $1.1 million related to the back-up care segment.

For the year ended December 31, 2023, impairment losses recognized in the fourth quarter totaled $35.9 million, of which $32.0 million related to the full service center-based child care segment and $3.9 million related to the back-up care segment.

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

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

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

(e) During the year ended December 31, 2022, the Company entered into foreign currency forward contracts for the purchase of Australian dollars to satisfy the purchase price of an acquisition completed on July 1, 2022.

A loss of $5.9 million resulting from fluctuations in foreign currency rates was recognized in the year ended December 31, 2022 in relation to these contracts.

(f) Interest on deferred consideration represents the imputed interest on the deferred consideration issued in connection with the July 1, 2022 acquisition of Only About Children, a child care operator in Australia.

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

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

(d) Other costs in the year ended December 31, 2024 consist of costs incurred in connection with the December 2024 debt refinancing of $0.8 million allocated to the full service center-based child care segment.

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

(e) Interest on deferred consideration represents the imputed interest on the deferred consideration issued in connection with the July 1, 2022 acquisition of Only About Children.

The deferred consideration was paid in January 2024.

(f) Adjusted income tax expense represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 28% for each of the years ended December 31, 2024 and 2023.

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

We believe the non-GAAP financial measures provide investors with useful information with respect to our historical operations.

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

Specifically, adjusted EBITDA allows for an assessment of our operating performance and of our ability to service or incur indebtedness without the effect of non-cash charges, such as interest, taxes, depreciation, amortization, stock-based compensation expense, and at times, non-recurring costs, such as impairment losses, value-added tax expense related to prior periods, transaction costs, loss on foreign currency forward contracts, and net costs incurred in relation to a cybersecurity incident.

Specifically, adjusted EBITDA allows for an assessment of our operating performance and of our ability to service or incur indebtedness without the effect of non-cash charges, such as depreciation, amortization, and stock-based compensation expense, and non-recurring costs, such as impairment losses, debt refinance costs, value-added tax expense related to prior periods and at times, other non-recurring costs, such as transaction costs.

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

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

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

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

• although depreciation, amortization and impairments are non-cash charges, the assets being depreciated, amortized and impaired will often have to be replaced in the future, and adjusted EBITDA, adjusted income from operations and adjusted net income do not reflect any cash requirements for such replacements.

Because of these limitations, adjusted EBITDA, adjusted income from operations, and adjusted net income should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

Liquidity and Capital Resources

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

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

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

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At December 31, 2024 and 2023, $384.8 million and $380.7 million of the revolving credit facility was available for borrowing, respectively.

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

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

The initial purchase price was financed with cash on hand.

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

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

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

We had a working capital deficit of $283.4 million and $352.5 million at December 31, 2024 and December 31, 2023, respectively.

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

We anticipate that our cash flows from operating activities will continue to improve as our center enrollment re-ramps and performance continues to recover.

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

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

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

During the years ended December 31, 2023 and 2022, $49.4 million and $86.8 million, respectively, was recorded as a reduction to cost of services in relation to these benefits, of which $17.5 million and $31.7 million, respectively, reduced the operating subsidy revenue from employers for the related child care centers.

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

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

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

We anticipate that our cash flows from operating activities will continue to expand as our center enrollment and performance continues to improve.

As we continue growing enrollment, we expect to allocate capital to investments that support current operations and strategic opportunities, as well as the principal and interest payments on our debt, including voluntary prepayments, and revolver, and share repurchases from time to time.

In January 2024, the Company paid deferred consideration of $106.5 million related to the 2022 acquisition of Only About Children.

During the year ended December 31, 2023, we participated in certain government support programs that were enacted in response to the economic impact of the pandemic.

With the expiration of the child care stabilization grants on September 30, 2023, most of the pandemic-related government support programs for which we were eligible ended in 2023.

During the year ended December 31, 2023, $49.4 million was recorded as a reduction to cost of services in relation to these benefits, of which $17.5 million reduced the operating subsidies paid by employers for the related child care centers.

Additionally, during the year ended December 31, 2023, $1.7 million was recorded to revenue related to amounts received for tuition support.

As of December 31, 2024, we had $845.7 million in lease liabilities, $102.1 million of which is short term in nature.

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

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

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

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

All repurchased shares have been retired.

The share repurchase program has no expiration date.

During the year ended December 31, 2024, we repurchased 0.8 million shares for $84.6 million (resulting in a $0.4 million excise tax liability).

There were no share repurchases during the year ended December 31, 2023.

All repurchased shares have been retired, and at December 31, 2024, $113.7 million remains available for future repurchases under the Board-approved repurchase program.

We believe that funds provided by operations, our existing cash balances and borrowings available under our revolving credit facility will be adequate to fund all obligations and liquidity requirements for at least the next 12 months.

However, if we were to experience renewed disruption from the pandemic or other similar global health crisis or if we were to undertake any significant acquisitions or make investments in the purchase of facilities for new or existing centers, we could require financing beyond our existing cash and borrowing capacity, and it could be necessary for us to obtain additional debt or equity financing.

However, if we were to experience disruption from events not in our control, such as a global health crisis, or if we were to undertake any significant acquisitions or make investments in the purchase of facilities for new or existing centers, we could require financing beyond our existing cash and borrowing capacity, and it could be necessary for us to obtain additional debt or equity financing.

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

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Cash provided by operating activities was $337.5 million for the year ended December 31, 2024, compared to $256.1 million for 2023.

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

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

The increase in cash provided by operations primarily relates to the increase in net income of $66.0 million, as well as higher cash provided by working capital arising from the timing of billings and payments when compared to the prior year.

Cash Used in Investing Activities

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

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

and six centers in Australia.

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

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

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

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

Additionally, during the year ended December 31, 2022, we used $5.9 million in cash to settle foreign currency arrangements, which did not occur in 2023.

During the year ended December 31, 2024, we invested $8.3 million in acquisitions, compared to an investment of $39.6 million during the prior year.

This decrease in cash used in investing activities was partially offset by an increase in net purchases of debt securities and other investments in 2024.

Net purchases of debt securities by our captive insurance entity, using restricted cash, and other investments were $14.2 million in the year ended December 31, 2024, compared to net proceeds of $3.5 million during the prior year, a net increase in cash used of $17.7 million.

In addition, during the year ended December 31, 2024, we had net investments of $95.3 million in fixed asset purchases for maintenance and refurbishments in our existing centers, technology across all segments, and new child care centers, compared to net investments of $90.8 million during the prior year, a net increase of $4.5 million.

We expect that in 2025 we will continue to spend on fixed asset additions related to new child care centers, maintenance and refurbishments in our existing centers, and continued investments in technology and equipment.

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Cash Used in Financing Activities

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

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

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

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

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

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

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

Cash used in financing activities was $183.8 million for the year ended December 31, 2024 compared to $91.6 million for the same period in 2023.

The increase in cash used in financing activities during the year ended December 31, 2024 was related to payments for deferred and contingent consideration and share repurchases, offset by a decrease in net payments under our revolving credit facility.

During the year ended December 31, 2024, we made payments for deferred and contingent consideration of $103.9 million, of which $97.7 million related to the deferred consideration for the 2022 acquisition of Only About Children and $6.2 million related to the contingent consideration for a 2021 acquisition, compared to $0.2 million for payments of contingent consideration during the same period in 2023.

During the year ended December 31, 2024, we used $84.6 million in cash for share repurchases, compared to no repurchases in 2023.

These increases in cash used were partially offset by a decrease in net payments related to our revolving credit facility, which were $84.0 million during the ended December 31, 2023, compared to zero in the year ended December 31, 2024.

Additionally, proceeds received from the exercise of employee equity awards increased to $27.0 million in the year ended December 31, 2024 compared to $11.2 million in 2023, an increase of $15.8 million, due to a higher volume of transactions and higher exercise prices.

Long term debt obligations were as follows:

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Long-term debt $ 918,449 $ 944,264

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

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

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

On December 11, 2024, the Company amended its existing senior secured credit facilities to, among other changes, reduce the applicable interest rates of the term loan B facility.

The Company incurred $0.8 million in fees associated with this amendment in the year ended December 31, 2024, which were included in selling, general and administrative expenses.

The seven-year term loan B matures on November 23, 2028 and requires quarterly principal payments equal to 1% per annum of the aggregate principal amount of the term loan B as of December 11, 2024, the date the Company amended its senior secured credit facility, with the remaining principal balance due at maturity.

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

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The revolving credit facility matures on May 26, 2026.

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

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

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

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

Borrowings under the credit agreement are subject to variable interest.

At December 31, 2024 and December 31, 2023, there were no borrowings outstanding under the revolving credit facility and letters of credit outstanding under the revolver were $15.2 million and $19.3 million, respectively, with $384.8 million and $380.7 million available for borrowing, respectively.

Borrowings under the credit facilities are subject to variable interest.

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

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

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

In June 2020, we entered into interest rate cap agreements with a total notional value of $800 million to provide us with interest rate protection in the event the one-month 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, we entered into additional interest rate cap agreements with a total notional value of $900 million.

Interest rate cap agreements for $600 million, which had a forward starting effective date of October 31, 2023 and expire on October 31, 2025, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 2.5% (effective December 30, 2022, one-month term SOFR rate increases above 2.4%).

Interest rate cap agreements for $300 million, which had a forward starting effective date of October 31, 2023 and expire on October 31, 2026, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 3.0% (effective December 30, 2022, one-month term SOFR rate increases above 2.9%).

The blended weighted average interest rate for the term loans and revolving credit facility was 4.88%, and 4.11% for the years ended December 31, 2024 and 2023, respectively, including the impact of the cash flow hedges.

Based on our current interest rate projections, we estimate that our overall weighted average interest rate will approximate 5.25% to 5.50% for 2024.

Based on our current interest rate projections, we estimate that our overall weighted average interest rate will approximate 5.00% for 2025, inclusive of the effects of cash flow hedges.

Based on the interest rates in effect as of December 31, 2024, interest payments on the outstanding principal balance of the term loans, including commitment fees on the revolving credit facility, are expected to range between $30 million and $60 million annually over the remaining term, prior to the inclusion of the effects of cash flow hedges.

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

(1) a cost-plus model, where we are paid a fee by an employer client for managing a child care center on a cost-plus basis, and (2) a P&L model, where we assume the financial risk of operating a child care center and provide 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.

(1) a cost-plus model, where we are 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 we assume the financial risk of operating a child care center and provide 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 model and P&L model sponsored by an employer, 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, we retain responsibility for all aspects of operating the child care center, including the hiring and paying of employees, contracting with vendors, purchasing supplies, and collecting tuition and related accounts receivable.

Under all model types, we retain 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.

Tuition is determined based on the age and developmental level of the child, the child’s attendance schedule, and the 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.

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Back-Up Care Services

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

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

Back-up care services consist of center-based back-up child care, in-home child and senior care, school-age programs (including camps and tutoring), pet care, self-sourced reimbursed care and Sittercity, an online marketplace for families and caregivers.

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

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

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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 fees paid per use, and are generally billed monthly as services are rendered or in advance.

Revenue for back-up care services is recognized over time as the services are performed and is recognized in the month the back-up services are provided.

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 we are acting as an agent and is recognized in the month the transactions are processed.

Educational Advisory and Other Services

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

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

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

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

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.

Educational Advisory Services

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

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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 we are acting as the agent for the processing of the payment from clients to their employees and is recognized in the month the payments are processed.

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

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

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.

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

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

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

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In performing the quantitative analysis, we compare 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.

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 10 years, applying a long-term growth rate to the final year, discounted using the applicable discount rate.

If the fair value of the reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not impaired.

If the carrying amount of the reporting unit exceeds its fair value, we 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 recorded impairment charges related to goodwill of $4.2 million in the year ended December 31, 2024.

We test certain trademarks that are determined to be indefinite-lived intangible assets by comparing the fair value of the trademarks with their carrying value.

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

During the year ended December 31, 2023, we recorded impairment charges for long-lived assets of $35.9 million related to fixed assets and operating lease right-of-use assets.

During the year ended December 31, 2024, we recorded impairment charges for long-lived assets of $30.9 million related to fixed assets, operating lease right-of-use assets and intangibles.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis