BRIGHT HORIZONS FAMILY SOLUTIONS INC

Previous wording

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “expects,” “may,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations; financial condition and liquidity; prospects; impacts of global health pandemics; labor, workplace and demographic trends; wage rate increases, labor costs and labor markets; future center closures; our United Kingdom and international operations; back-up care services and use types; enrollment recovery and occupancy improvement in the United States and internationally; our center cohort occupancy levels; cost management and capital spending; investments in employees and wages; contributions and growth in our back-up care segment; the availability and impact of pandemic-related government relief and support programs; tuition rate increases and pricing strategies; leases, terms and expirations; ability to respond to changing market conditions; our growth and strategic priorities; ability to regain and sustain our business; demand for services; our value proposition, client relations and partnerships; macroeconomic trends, including inflation; investments in operations and strategic opportunities; investments in technology, marketing and user experience; shared services costs; our opportunities for expansion, acquisitions, contributions and expected synergies; contingent consideration; amortization expense; our fair value estimates; goodwill from business combinations; impairments; fixed assets; estimates and impact of equity transactions; unrecognized tax benefits and the impact of uncertain tax positions; our effective tax rate; the outcome of tax audits, settlements and tax liabilities; impact of tax benefits/expense; fluctuations, impact and estimates of foreign currency exchange rates and interest rates; our capital allocation; share repurchase program; the outcome of litigation, legal proceedings and our insurance coverage; debt securities; our interest rates, expense and impact of our…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “expects,” “may,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations; financial condition and liquidity; impacts of global health pandemics; labor, workplace and demographic trends; wage rate increases, labor costs and labor markets; future center closures and portfolio optimization and impacts; our United Kingdom and international operations; back-up care services and use types; enrollment recovery and occupancy improvement in the United States and internationally; our center cohort occupancy levels; cost management and capital spending; investments in employees and wages; contributions and growth in our back-up care segment; the impact of government relief and support programs; tuition rate increases and pricing strategies; leases, terms and expirations; ability to respond to changing market conditions; our growth and strategic priorities; ability to regain and sustain our business; demand for services; our value proposition, client relations and partnerships; macroeconomic trends and changing conditions, including inflation; investments in operations and strategic opportunities; investments in technology, marketing and user experience; shared services costs; our opportunities for expansion; acquisitions, contributions and expected synergies; contingent consideration; amortization expense; our fair value estimates; goodwill from business combinations; impairments; fixed assets; estimates and impact of equity transactions; unrecognized tax benefits and the impact of uncertain tax positions; our effective tax rate; the outcome of tax audits, settlements and tax liabilities; impact of tax benefits/expense; fluctuations, impact and estimates of foreign currency exchange rates and interest rates; our capital allocation; share repurchase program; the outcome of litigation, legal proceedings and our insurance coverage; debt securities; our interest rates, expense…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

The following is a discussion of the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of Bright Horizons Family Solutions Inc. (“we” or the “Company”) for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The following is a discussion of the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of Bright Horizons Family Solutions Inc. (“we” or the “Company”) for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023. This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

As of March 31, 2024, we operated 1,044 early education and child care centers with the capacity to serve approximately 120,000 children in the United States, the United Kingdom, the Netherlands, Australia and India.

Current wording

As of June 30, 2024, we operated 1,032 early education and child care centers with the capacity to serve approximately 115,000 children in the United States, the United Kingdom, the Netherlands, Australia and India.

Previous wording

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, self-sourced reimbursed care, and Sittercity, an online marketplace for families and caregivers. Educational advisory services include tuition assistance and student loan repayment program management, workforce education and related educational advising, and college advisory services. Effective January 1, 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, the back-up care reportable segment now includes the Sittercity operations, which were previously reported in the educational advisory and other services segment.

Current wording

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, self-sourced reimbursed care, and Sittercity, an online marketplace for families and caregivers. Educational advisory services include tuition assistance and student loan repayment program management, workforce education and related educational advising, and college admissions counseling services. Effective January 1, 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, 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.

Previous wording

During the three months ended March 31, 2024, we saw strong year-over-year revenue growth, with a 12% increase in revenue for our full service center-based child care segment and net enrollment growth of 6% as centers continue to re-ramp post-pandemic. To track our continued progress on the recovery from the pandemic, we monitor same-center occupancy for a cohort of centers that has been operating since the 2021 fall enrollment cycle. Same-center occupancy represents utilization for each respective center and is calculated as the average full-time enrollment divided by the total operating capacity during the period. This cohort of centers totaled 800 centers as of March 31, 2024. For the quarter ended March 31, 2024, 44% of these centers were more than 70% enrolled, 42% were between 40-70% enrolled and 14% were less than 40% enrolled, which reflects improved occupancy when compared to the same period in the prior year. We also saw solid growth in back-up care with a 16% year-over-year increase in revenue as a result of increased utilization.

Current wording

During the three months ended June 30, 2024, we saw strong year-over-year revenue growth, with an 11% increase in revenue for our full service center-based child care segment and net enrollment growth of 4% as centers continue to re-ramp post-pandemic. To track our continued progress on the recovery from the pandemic, we monitor occupancy for a cohort of centers that has been operating since the 2021 fall enrollment cycle. Occupancy represents utilization for each respective center and is calculated as the average full-time enrollment divided by the total operating capacity during the period. This cohort of centers totaled 786 centers as of June 30, 2024. For the quarter ended June 30, 2024, 51% of these centers were more than 70% enrolled, 39% were between 40-70% enrolled and 10% were less than 40% enrolled, which reflects improved occupancy when compared to the same period in the prior year and sequentially from the first quarter of 2024. We also saw solid growth in back-up care with a 15% year-over-year increase in revenue as a result of increased utilization.

Previous wording

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 demand 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 in addition to the impairment of certain assets. We expect this trend to continue in 2024 as we execute on the closure of certain underperforming centers identified during our portfolio review process, including a number of centers in the United Kingdom. Where possible, we shift enrollment and teachers to other centers at nearby locations.

Current wording

While we continue to see year-over-year growth and progress, we are still navigating through a dynamic operating environment that is impacted by increased costs, a tight labor market, varying enrollment demands, and shifting work demographics. We continue to monitor and respond to the changing conditions, and the changing needs of clients, families and children, including the closure of underperforming centers in order to optimize our portfolio of centers to accommodate changes in demand 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 in addition to the impairment of certain assets. We expect this trend to continue in 2024 as we execute on the closure of certain underperforming centers identified during our portfolio review process. Where possible, we shift enrollment and teachers to other centers at nearby locations.

Previous wording

Revenue. Revenue for the three months ended March 31, 2024, increased by $69.1 million, or 12%, to $622.7 million from $553.6 million for the same period in 2023. The following table summarizes the revenue and percentage of total revenue for each of our segments for the three months ended March 31, 2024 and 2023:

Current wording

Revenue. Revenue for the three months ended June 30, 2024, increased by $66.8 million, or 11%, to $670.1 million from $603.2 million for the same period in 2023. The following table summarizes the revenue and percentage of total revenue for each of our segments for the three months ended June 30, 2024 and 2023:

Previous wording

Revenue generated by the full service center-based child care segment in the three months ended March 31, 2024 increased by $53.4 million, or 12%, when compared to the same period in 2023. Tuition revenue increased by $49.5 million, or 13%, when compared to the prior year, due to a 6% net increase in enrollment and average tuition rate increases at our child care centers of approximately 5%. While we continue to see sequential enrollment growth at our centers, the ongoing labor market challenges and current economic conditions have constrained enrollment and slowed the recovery in both the United States. and international markets, and we continue to operate below pre-pandemic enrollment levels at certain locations. We expect continued occupancy improvement in relation to the same prior year periods through the remainder of 2024, with more modest improvement in the United Kingdom. as that geography remains more impacted. Net 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 1%, or $2.9 million. While we expect to be impacted by fluctuations in the foreign currency exchange rates throughout the year, we do not expect fluctuations in foreign currency exchange rates to have a significant impact to the full year results for 2024.

Current wording

Revenue generated by the full service center-based child care segment in the three months ended June 30, 2024 increased by $48.5 million, or 11%, when compared to the same period in 2023. Tuition revenue increased by $43.3 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%. While we continue to see enrollment growth at our centers, the ongoing labor market challenges and current economic conditions have impacted the recovery in both the United States and international markets, and we continue to operate below pre-pandemic enrollment levels at certain locations. We expect continued occupancy improvement in relation to the same prior year periods through the remainder of 2024.

Previous wording

Management fees and operating subsidies from employer sponsors increased by $4.0 million, or 10%, 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 for expired in September 2023. Funding received from pandemic-related government support programs reduce certain center operating costs, which impact the related operating subsidies. During the three months ended March 31, 2023, such funding reduced the operating subsidy revenue due from employers by $7.4 million.

Current wording

Management fees and operating subsidies from employer sponsors increased by $5.2 million, or 14%, 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 for expired in September 2023. Funding received from pandemic-related government support programs reduce certain center operating costs, which impacts the related operating subsidies. During the three months ended June 30, 2023, such funding reduced the operating subsidy revenue due from employers by $4.8 million.

Previous wording

Revenue generated by back-up care services in the three months ended March 31, 2024 increased by $15.5 million, or 16%, when compared to the same period in 2023. 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 by new and existing clients.

Current wording

Revenue generated by back-up care services in the three months ended June 30, 2024 increased by $17.7 million, or 15%, when compared to the same period in 2023. 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 by new and existing clients.

Previous wording

Revenue generated by educational advisory services in the three months ended March 31, 2024 was consistent with the same period in the prior year.

Current wording

Revenue generated by educational advisory services in the three months ended June 30, 2024 increased by $0.6 million, or 2%, when compared to the same period in 2023 on increased utilization.

Previous wording

Cost of Services. Cost of services increased by $55.6 million, or 13%, to $487.6 million for the three months ended March 31, 2024 from $432.0 million for the same period in 2023.

Current wording

Cost of Services. Cost of services increased by $40.9 million, or 9%, to $507.6 million for the three months ended June 30, 2024 from $466.7 million for the same period in 2023.

Previous wording

Cost of services in the full service center-based child care segment increased by $45.4 million, or 13%, to $404.0 million in the three months ended March 31, 2024 when compared to the same period in 2023. The increase in cost of services was primarily associated with increased labor costs related to expanded enrollment and wage rate increases. Personnel costs, which generally represent 70% of the costs for this segment, increased 9% during the quarter compared to the same period in the prior year. In addition to the personnel costs for the incremental 6% net enrollment noted above and premiums associated with the deployment of temporary staff to meet enrollment demand, 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. 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 a total of $21.6 million in the first quarter of 2023. As noted above, a portion of the funding received from pandemic-related 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 $7.4 million in the three months ended March 31, 2023.

Current wording

Cost of services in the full service center-based child care segment increased by $31.5 million, or 8%, to $415.9 million in the three months ended June 30, 2024 when compared to the same period in 2023. The increase in cost of services was primarily associated with increased labor costs related to expanded enrollment and wage rate increases. Personnel costs, which generally represent 70% of the costs for this segment, increased 5% during the quarter compared to the same period in the prior year. In addition to the personnel costs for the incremental 4% net enrollment noted above and premiums associated with the deployment of temporary staff to meet enrollment demand, 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. 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 a total of $13.5 million in the second quarter of 2023. As noted above, a portion of the funding received from pandemic-related 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 $4.8 million in the three months ended June 30, 2023.

Previous wording

Gross Profit. Gross profit increased by $13.5 million, or 11%, to $135.1 million for the three months ended March 31, 2024 from $121.6 million for the same period in 2023. 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 higher utilization of back-up care services, were partially offset by reduced funding from pandemic-related government support programs. Gross profit margin was 22% of revenue for the three months ended March 31, 2024, which is broadly consistent with the three months ended March 31, 2023.

Current wording

Gross Profit. Gross profit increased by $25.8 million, or 19%, to $162.4 million for the three months ended June 30, 2024 from $136.6 million for the same period in 2023. Incremental gross profit contributions from the full service center-based child care segment, resulting from enrollment growth and the associated operating leverage, and from the back-up care segment, resulting from higher utilization of back-up care services, were partially offset by reduced funding from pandemic-related government support programs. Gross profit margin was 24% of revenue for the three months ended June 30, 2024, an increase of approximately 2% compared to the three months ended June 30, 2023.

Previous wording

Amortization of Intangible Assets. Amortization expense on intangible assets was $7.6 million for the three months ended March 31, 2024, a decrease from $8.2 million for the three months ended March 31, 2023, due to decreases from intangible assets becoming fully amortized during the period and impact of accelerated method of amortization for certain intangible assets, partially offset by increases from intangible assets acquired in relation to the acquisitions completed in 2023 and 2024.

Current wording

Amortization of Intangible Assets. Amortization expense on intangible assets was $5.9 million for the three months ended June 30, 2024, a decrease from $9.1 million for the three months ended June 30, 2023, primarily due to decreases from 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.

Previous wording

Income from Operations. Income from operations increased by $9.3 million, or 30%, to $39.9 million for the three months ended March 31, 2024 when compared to the prior year. The following table summarizes income from operations and percentage of revenue for each of our segments for the three months ended March 31, 2024 and 2023:

Current wording

Income from Operations. Income from operations increased by $23.5 million, or 52%, to $69.1 million for the three months ended June 30, 2024 when compared to the prior year. The following table summarizes income from operations and percentage of revenue for each of our segments for the three months ended June 30, 2024 and 2023:

Previous wording

•Income from operations for the educational advisory services segment decreased $1.9 million, or 43%, in the three months ended March 31, 2024 when compared to the same period in 2023 due to product design, technology and marketing investments to support revenue growth.

Current wording

•Income from operations for the educational advisory services segment decreased $0.2 million, or 3%, in the three months ended June 30, 2024 when compared to the same period in 2023 due to product design, technology and marketing investments to support revenue growth.

Previous wording

Net Interest Expense. Net interest expense increased to $13.7 million for the three months ended March 31, 2024 from $12.9 million for the same period in 2023 primarily due to increased borrowings under our revolving credit facility, and higher interest rates applicable to our debt. The weighted average interest rate for the term loans and revolving credit facility was 5.05% for the three months ended March 31, 2024 compared to 3.97% for the three months ended March 31, 2023, inclusive of the effects of the cash flow hedges. Based on our current interest rate projections, we estimate that our overall weighted average interest rate will be between 5.00% and 5.25% for the remainder of 2024 inclusive of the effects of the cash flow hedges.

Current wording

Net Interest Expense. Net interest expense of $12.0 million for the three months ended June 30, 2024 remained consistent with the net interest expense for the same period in 2023 of $12.2 million; the higher interest rates applicable to our debt were offset by a decrease in interest expense associated with a deferred payment for the Only About Children acquisition, which was paid January 2024. The weighted average interest rate for the term loans and revolving credit facility was 4.90% for the three months ended June 30, 2024 compared to 3.89% for the three months ended June 30, 2023, inclusive of the effects of the cash flow hedges. Based on our current interest rate projections, we estimate that our overall weighted average interest rate will be between 5.00% and 5.25% for the remainder of 2024 inclusive of the effects of the cash flow hedges.

Previous wording

Income Tax Expense. We recorded income tax expense of $9.3 million during the three months ended March 31, 2024, at an effective income tax rate of 35%, compared to an income tax expense of $9.6 million during the three months ended March 31, 2023, at an effective income tax rate of 54%. The difference between the effective income tax rate as compared to the statutory income tax rate was primarily due to the impact of unbenefited losses in certain foreign jurisdictions and the effects of net shortfall tax expense associated with the exercise or expiration of stock options and vesting of restricted stock, which had a more significant impact to effective tax rate for the 2023 period due to a higher tax expense and a lower income before income taxes in 2023. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including changes to income before income tax, jurisdictional mix of income before income tax, unbenefited losses, valuation allowances, jurisdictional income tax rate changes, as well as discrete items such as non-deductible transaction costs, the settlement of foreign, federal and state tax matters and the effects of excess (shortfall) tax benefit (expense) associated with the exercise or expiration of stock options and vesting of restricted stock.

Current wording

Income Tax Expense. We recorded income tax expense of $17.9 million during the three months ended June 30, 2024, at an effective income tax rate of 31%, compared to an income tax expense of $12.7 million during the three months ended June 30, 2023, at an effective income tax rate of 38%. The difference between the effective income tax rate as compared to the statutory income tax rate was primarily due to the impact of unbenefited losses in certain foreign jurisdictions and the effects of net shortfall tax expense associated with the exercise or expiration of stock options and vesting of restricted stock, which had a more significant impact to the effective tax rate for the 2023 period due to a higher tax expense and a lower income before income taxes in 2023. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including changes to income before income tax, jurisdictional mix of income before income tax, unbenefited losses, valuation allowances, jurisdictional income tax rate changes, as well as discrete items such as non-deductible transaction costs, the settlement of foreign, federal and state tax matters and the effects of excess (shortfall) tax benefit (expense) associated with the exercise or expiration of stock options and vesting of restricted stock.

Previous wording

During the three months ended March 31, 2024 and 2023, the net shortfall tax expense from stock-based compensation expense increased tax expense by $0.7 million and $2.1 million, respectively. For the three months ended March 31, 2024 and 2023, prior to the inclusion of the shortfall tax expense, other discrete items and unbenefited losses in certain foreign jurisdictions, the effective tax rate approximated 28% and 30%, respectively.

Current wording

During the three months ended June 30, 2024 and 2023, the net shortfall tax expense from stock-based compensation expense increased tax expense by $0.2 million and $0.8 million, respectively. For the three months ended June 30, 2024 and 2023, prior to the inclusion of the shortfall tax expense, other discrete items and unbenefited losses in certain foreign jurisdictions, the effective tax rate approximated 27% and 28%, respectively.

Previous wording

Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA increased $5.1 million, or 7%, and adjusted income from operations increased $3.3 million, or 9% for the three months ended March 31, 2024 over the comparable period in 2023 due to the incremental gross profit contributions from the full service center-based child care segment resulting from enrollment growth and tuition price increases.

Current wording

Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA increased $20.7 million, or 25%, and adjusted income from operations increased $23.5 million, or 52% for the three months ended June 30, 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.

Previous wording

Adjusted Net Income. Adjusted net income increased $1.3 million, or 5%, for the three months ended March 31, 2024 when compared to the same period in 2023, primarily due to the increase in adjusted income from operations, partially offset by higher interest expense.

Current wording

Adjusted Net Income. Adjusted net income increased $14.5 million, or 39%, for the three months ended June 30, 2024 when compared to the same period in 2023, primarily due to the increase in adjusted income from operations.

Previous wording

Cost of services in the back-up care segment increased by $9.1 million, or 15%, to $68.9 million in the three months ended March 31, 2024, when compared to the prior year. The increase in cost of services is in line with 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 and technology to support our customer user experience and service offerings. Cost of services for the three months ended March 31, 2023 included $4.3 million in value-added tax related to prior periods.

Current wording

Cost of services in the back-up care segment increased $18.2 million, or 14%, to $146.2 million in the six months ended June 30, 2024, when compared to the prior year. The increase in cost of services is in line with 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. Cost of services for the six months ended June 30, 2023 included $4.3 million in value-added tax related to prior periods.

Previous wording

Cost of services in the educational advisory services segment increased by $1.2 million, or 9%, to $14.7 million in the three months ended March 31, 2024 when compared to the prior year, due to technology platform investments to support customer access and user experience.

Current wording

Cost of services in the educational advisory services segment increased by $1.5 million, or 6%, to $29.2 million in the six months ended June 30, 2024 when compared to the prior year, due to technology platform investments to support customer access and user experience.

Previous wording

Selling, General and Administrative Expenses (“SGA”). SGA increased by $4.8 million, or 6%, to $87.5 million for the three months ended March 31, 2024 from $82.8 million for the same period in 2023, due to incremental spending to support the business as it continues to re-ramp post-pandemic, higher labor costs 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 for the three months ended March 31, 2023, included value-added tax expense of $1.7 million related to prior periods. SGA was 14% of revenue for the three months ended March 31, 2024, a decrease of 1% from the same period in 2023.

Current wording

Selling, General and Administrative Expenses. SGA increased $10.4 million, or 6%, to $175.0 million for the six months ended June 30, 2024 from $164.7 million for the same period in 2023, due to incremental spending to support the business as it continues to re-ramp post-pandemic, higher labor costs 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 for the six months ended June 30, 2023 included value-added tax expense of $1.7 million related to prior periods. SGA was 14% of revenue for the six months ended June 30, 2024, a decrease of approximately 1% from the same period in 2023.

Previous wording

•Income from operations for the full service center-based child care segment increased $13.0 million, or 154%, in the three months ended March 31, 2024 when compared to the same period in 2023, primarily due to increases in tuition revenue from enrollment growth and annual tuition rate increases, partially offset by increased labor costs and a decrease of approximately $15 million in net contributions from pandemic-related government support programs as most of the programs for which we were eligible ended by September 30, 2023. Income from operations for the three months ended March 31, 2023 included $1.7 million in value-added tax expense related to prior periods.

Current wording

•Income from operations for the full service center-based child care segment increased $32.6 million, or 152%, in the six months ended June 30, 2024 when compared to the same period in 2023, primarily due to increases in tuition revenue from enrollment growth and annual tuition rate increases, partially offset by increased labor costs, and a decrease of approximately $24 million in net contributions from government support programs as most of the programs for which we were eligible ended by September 30, 2023. Income from operations for the six months ended June 30, 2023 included $1.7 million in value-added tax expense related to prior periods.

Previous wording

•Income from operations for the back-up care segment decreased $1.8 million, or 10%, in the three months ended March 31, 2024 when compared to the same period in 2023. Incremental contributions from expanded utilization of back-up care services were offset by higher overhead costs, including a $2.3 million charge related to the early settlement of contingent consideration for a 2021 acquisition and allocation of shared services costs which have historically remained relatively stable throughout the year. Income from operations for the three months ended March 31, 2023 included $4.3 million in value-added tax related to prior periods.

Current wording

•Income from operations for the back-up care segment increased $2.3 million, or 5%, in the six months ended June 30, 2024 when compared to the same period in 2023. Incremental contributions from expanded utilization of back-up care services were partially offset by higher overhead costs, including a $2.3 million charge related to the early settlement of contingent consideration for a 2021 acquisition and allocation of shared services costs which have historically remained relatively stable throughout the year. Income from operations for the six months ended June 30, 2023 included$4.3 million in value-added tax expense related to prior periods.

Previous wording

(a)Amortization of intangible assets represents amortization expense, including quarterly amortization expense of approximately $5.0 million associated with intangible assets recorded in connection with our going private transaction in May 2008.

Current wording

(a)Amortization of intangible assets represents amortization expense, including amortization expense of $3.3 million and $5.0 million for the three months ended June 30, 2024 and 2023 respectively, and of $8.3 million and $10.0 million for the six months ended June 30, 2024 and 2023, respectively, associated with intangible assets recorded in connection with our going private transaction in May 2008.

Previous wording

(c)Other costs in the three months ended March 31, 2023 consist of value-added tax expense of $6.0 million related to prior periods, of which $4.3 million was associated with the back-up care segment and $1.7 million was associated with the full service center-based child care segment.

Current wording

(c)Other costs in the six months ended June 30, 2023 consist of value-added tax expense of $6.0 million related to prior periods, of which $4.3 million was associated with the back-up care segment and $1.7 million was associated with the full service center-based child care segment.

Previous wording

(e)Adjusted income tax expense represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 28% for both the three months ended March 31, 2024 and 2023. The jurisdictional mix of the expected adjusted income before income tax for the full year will affect the estimated effective tax rate for the year.

Current wording

(e)Adjusted income tax expense represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 28% for both the three and six months ended June 30, 2024 and 2023. The jurisdictional mix of the expected adjusted income before income tax for the full year will affect the estimated effective tax rate for the year.

Previous wording

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. We had $63.7 million in cash ($69.4 million including restricted cash) at March 31, 2024, of which $33.3 million was held in foreign jurisdictions, compared to $71.6 million in cash ($89.5 million including restricted cash) at December 31, 2023, of which $32.1 million was held in foreign jurisdictions. Operations outside of North America accounted for 28% of our consolidated revenue in the three months ended March 31, 2024 and 2023. The net impact on our liquidity from changes in foreign currency exchange rates was not material for the three months ended March 31, 2024 and 2023. While we expect to be impacted by fluctuations in the foreign currency exchange rates throughout the year, we do not currently expect that the effects of changes in foreign currency exchange rates will have a material net impact on our liquidity, capital resources or results from operations for the remainder of 2024.

Current wording

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. We had $140.2 million in cash ($143.6 million including restricted cash) at June 30, 2024, of which $35.9 million was held in foreign jurisdictions, compared to $71.6 million in cash ($89.5 million including restricted cash) at December 31, 2023, of which $32.1 million was held in foreign jurisdictions. Operations outside of North America accounted for 28% of our consolidated revenue in the six months ended June 30, 2024 and 2023. The net impact on our liquidity from changes in foreign currency exchange rates was not material for the six months ended June 30, 2024 and 2023. While we expect to be impacted by fluctuations in the foreign currency exchange rates throughout the year, we do not currently expect that the effects of changes in foreign currency exchange rates will have a material net impact on our liquidity, capital resources or results from operations for the remainder of 2024.

Previous wording

We had a working capital deficit of $338.2 million and $352.5 million at March 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.

Current wording

We had a working capital deficit of $316.5 million and $352.5 million at June 30, 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 expand 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.

Previous wording

During the three months ended March 31, 2023, we 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 we were eligible ended in 2023. During the three months ended March 31, 2023, $21.6 million was recorded as a reduction to cost of services in relation to these benefits, of which $7.4 million reduced the operating subsidies paid by employers for the related child care centers. Additionally, during the three months ended March 31, 2023, $0.6 million was recorded to revenue related to amounts received for tuition support.

Current wording

During the six months ended June 30, 2023, we 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 we were eligible ended in 2023. During the six months ended June 30, 2023, $35.1 million was recorded as a reduction to cost of services in relation to these benefits, of which $12.2 million reduced the operating subsidies paid by employers for the related child care centers. Additionally, during the six months ended June 30, 2023, $1.2 million was recorded to revenue related to amounts received for tuition support.

Previous wording

As of March 31, 2024, we had $888.7 million in lease liabilities, $99.8 million of which is short term in nature. Refer to Note 3, Leases, to our condensed consolidated financial statements for additional information on leases, including the maturity of the contractual obligations related to our lease liabilities.

Current wording

As of June 30, 2024, we had $876.3 million in lease liabilities, $100.9 million of which is short term in nature. Refer to Note 3, Leases, to our condensed consolidated financial statements for additional information on leases, including the maturity of the contractual obligations related to our lease liabilities.

Previous wording

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 March 31, 2024, $198.3 million remained available for future repurchases. During the three months ended March 31, 2024 and 2023, we did not make any share repurchases under the Board-approved repurchase program. All repurchased shares have been retired.

Current wording

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. During the six months ended June 30, 2024 and 2023, we did not make any share repurchases under the Board-approved repurchase program, and at June 30, 2024, $198.3 million remained available for future repurchases. All repurchased shares have been retired.

Previous wording

Cash provided by operating activities was $116.3 million for the three months ended March 31, 2024, compared to $67.3 million for the same period in 2023. The increase in cash provided by operations primarily relates to higher cash provided by working capital arising from the timing of billings and payments when compared to the prior year, as well as an increase in net income of $8.9 million.

Current wording

Cash provided by operating activities was $225.8 million for the six months ended June 30, 2024, compared to $180.0 million for the same period in 2023. The increase in cash provided by operations primarily relates to an increase in net income of $27.4 million, as well as higher cash provided by working capital arising from the timing of billings and payments when compared to the prior year.

Previous wording

Cash used in investing activities was $38.1 million for the three months ended March 31, 2024 compared to $18.2 million for the same period in 2023, an increase of $19.9 million. The increase in cash used in investing activities was primarily related to an increase in net purchases of debt securities by our captive insurance entity, using restricted cash, and other investments, which were $16.2 million in the three months ended March 31, 2024, compared to net proceeds of $1.2 million during the same period in the prior year, a net change of $17.4 million. Additionally, during the three months ended March 31, 2024, we invested $2.5 million to acquire one center in Australia, while we did not have any acquisitions in the same period in 2023.

Current wording

Cash used in investing activities was $64.1 million for the six months ended June 30, 2024 compared to $68.7 million for the same period in 2023, a decrease of $4.6 million. The decrease in cash used in investing activities was primarily related to a decrease in payments and settlements for acquisitions. During the six months ended June 30, 2024, we invested $3.5 million in acquisitions, compared to an investment of $30.9 million during the same period in the prior year. This decrease was partially offset by an increase in net purchases of debt securities by our captive insurance entity, using restricted cash, and other investments, which were $18.6 million in the six months ended June 30, 2024, compared to net proceeds of $2.3 million during the same period in the prior year, a net change of $20.9 million.

Previous wording

Cash used in financing activities was $97.6 million for the three months ended March 31, 2024 compared to $41.0 million for the same period in 2023. The increase in cash used in financing activities during the three months ended March 31, 2024 was related to the January 2024 payment of $97.7 million of deferred consideration related to the 2022 acquisition of Only About Children. During the three months ended March 31, 2023, we made net payments related to our revolving credit facility of $39.5 million, compared to the three months ended March 31, 2024 wherein the net activity under our revolving credit facility amounted to zero.

Current wording

Cash used in financing activities was $106.8 million for the six months ended June 30, 2024 compared to $86.5 million for the same period in 2023. The increase in cash used in financing activities during the six months ended June 30, 2024 was related to 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. During the six months ended June 30, 2023, we made net payments related to our revolving credit facility of $84.0 million, compared to the six months ended June 30, 2024 wherein the net activity under our revolving credit facility amounted to zero.

Previous wording

Borrowings under the credit facilities are subject to variable interest. We mitigate our interest rate exposure with interest rate cap agreements. In June 2020, we entered into interest rate cap agreements with a total notional value of $800 million. These interest rate cap agreements, designated and accounted for as cash flow hedges, provide us with interest rate protection in the event the one-month 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 interest rate cap agreements with a total notional value of $900 million designated and accounted for as cash flow hedges. 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 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 term SOFR rate increases above 2.9%.

Current wording

Borrowings under the credit facilities are subject to variable interest. We mitigate our interest rate exposure with interest rate cap agreements. In June 2020, we entered into interest rate cap agreements with a total notional value of $800 million. These interest rate cap agreements, designated and accounted for as cash flow hedges, provided us with interest rate protection in the event the one-month term SOFR rate increased 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 interest rate cap agreements with a total notional value of $900 million designated and accounted for as cash flow hedges. 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 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 term SOFR rate increases above 2.9%.

Previous wording

The blended weighted average interest rate for the term loans and revolving credit facility was 5.05% and 3.97% for the three months ended March 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 be between 5.00% and 5.25% for the remainder of 2024 inclusive of the effects of the cash flow hedges.

Current wording

The blended weighted average interest rate for the term loans and revolving credit facility was 4.98% and 3.93% for the six months ended June 30, 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 be between 5.00% and 5.25% for the remainder of 2024 inclusive of the effects of the cash flow hedges.