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; impacts of global health pandemics; labor, workplace and demographic trends; wage rate increases, personnel 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 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; seasonality; macroeconomic trends and changing conditions, including inflationary pressures; 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 employee 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 and future activity; the outcome of litigation, legal proceedi…

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; liquidity; labor, workplace and demographic trends; wage rate increases, personnel costs and labor markets; future center closures and portfolio optimization and impacts; our operations outside the United States; back-up care services and use types; enrollment recovery and occupancy improvement in the United States and outside the United States; 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 or lack of government support programs; tuition rate increases and pricing strategies; leases, terms and expirations; ability to respond to changing or volatile market conditions; our growth and strategic priorities; ability to regain and sustain our business; demand for services; our value proposition, client relations and partnerships; seasonality; macroeconomic trends and changing conditions, including uncertainty and inflationary or recessionary pressures; fluctuating interest rates; changes in laws and regulations; 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 employee 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 and fut…

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 and nine months ended September 30, 2024, as compared to the three and nine months ended September 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.

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 months ended March 31, 2025, as compared to the three months ended March 31, 2024. 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, 2024.

Previous wording

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 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.

Current wording

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 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, and we serve the needs of working families directly through our community facing child care centers.

Previous wording

As of September 30, 2024, we operated 1,028 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.

Current wording

As of March 31, 2025, we operated 1,023 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 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.

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 seniors, school-age programs (including camps and tutoring), pet care, self-sourced reimbursed care, and 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.

Previous wording

During the three months ended September 30, 2024, we saw solid year-over-year revenue growth, with a 9% increase in revenue for our full service center-based child care segment and net enrollment growth of 3% 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 778 centers as of September 30, 2024. For the quarter ended September 30, 2024, 42% of these centers were more than 70% enrolled, 45% were between 40-70% enrolled and 13% were less than 40% enrolled, which reflects improved occupancy when compared to the same period in the prior year and reflects a decrease when compared to the second quarter of 2024 due to typical seasonal fluctuations. We also saw strong growth in back-up care with an 18% year-over-year increase in revenue as a result of increased utilization.

Current wording

During the three months ended March 31, 2025, we saw strong growth in back-up care with a 12% year-over-year increase in revenue as a result of increased utilization. We also saw solid year-over-year revenue growth of 6% in our full service center-based child care segment, including net enrollment growth of 2%. To track our continued improvement in occupancy rates, we monitor occupancy for a cohort of centers that has been operating since the 2021 fall enrollment cycle, and as of March 31, 2025, this cohort of centers totaled 766 centers. 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. For the quarter ended March 31, 2025, 47% of these centers were more than 70% enrolled, 40% were between 40-70% enrolled and 13% were less than 40% enrolled, which reflects improved occupancy when compared to the same period in the prior year and when compared to the fourth quarter of 2024.

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 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 evolving needs of clients, families and children, including through the closure of underperforming centers in order to optimize our portfolio of centers to accommodate such 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.

Current wording

While we continue to see year-over-year growth and progress, we are navigating through a dynamic operating environment that is impacted by increased costs, a tight labor market, varying enrollment demands, shifting work demographics, and challenging and uncertain 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. Where possible, we shift enrollment and teachers to other centers at nearby locations.

Previous wording

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. As we continue to navigate this post-pandemic recovery period, we remain committed to serving the needs of families, clients and our employees. We are confident in our value proposition, business model, the strength of our client partnerships, the strength of our balance sheet and liquidity position, and our ability to continue to respond to changing market conditions.

Current wording

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. 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 and volatile market conditions.

Previous wording

Revenue. Revenue for the three months ended September 30, 2024, increased by $73.3 million, or 11%, to $719.1 million from $645.8 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 September 30, 2024 and 2023:

Current wording

Revenue. Revenue for the three months ended March 31, 2025, increased by $42.8 million, or 7%, to $665.5 million from $622.7 million for the same period in 2024. The following table summarizes the revenue and percentage of total revenue for each of our segments for the three months ended March 31, 2025 and 2024:

Previous wording

Revenue generated by the full service center-based child care segment in the three months ended September 30, 2024 increased by $41.8 million, or 9%, when compared to the same period in 2023. Tuition revenue increased by $39.1 million, or 10%, when compared to the prior year, due to a 3% 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 occupancy improvement to continue in relation to the same prior year periods through the remainder of 2024. 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 $3.8 million. While we expect to be impacted by fluctuations in the foreign currency exchange rates throughout the year, we do not expect such fluctuations 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 March 31, 2025 increased by $26.9 million, or 6%, when compared to the same period in 2024. Tuition revenue increased by $24.1 million, or 6%, when compared to the prior year, due to a 2% net increase in enrollment and average tuition rate increases at our child care centers of approximately 4-5%. Fluctuations in foreign currency exchange rates for our United Kingdom, Netherlands and Australia operations decreased 2025 tuition revenue by approximately 1%, or $3.8 million. While we expect to be impacted by fluctuations in the foreign currency exchange rates throughout the year, we currently do not expect such fluctuations to have a material impact to the full year net operating results for 2025.

Previous wording

Management fees and operating subsidies from employer sponsors increased by $2.8 million, or 6%, 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 September 30, 2023, such funding reduced the operating subsidy revenue due from employers by $5.0 million.

Current wording

Management fees and operating subsidies from employer sponsors increased by $2.8 million, or 7%, primarily due to higher operating subsidies required to support center operations as enrollment continues to increase.

Previous wording

Revenue generated by back-up care services in the three months ended September 30, 2024 increased by $30.4 million, or 18%, 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 March 31, 2025 increased by $13.9 million, or 12%, when compared to the same period in 2024. Revenue growth in the back-up care segment was primarily attributable to increased utilization of center-based, in-home and school age programs by new and existing clients.

Previous wording

Revenue generated by educational advisory services in the three months ended September 30, 2024 increased by $1.1 million, or 4%, when compared to the same period in 2023 on increased utilization.

Current wording

Revenue generated by educational advisory services in the three months ended March 31, 2025 increased by $2.0 million, or 8%, when compared to the same period in 2024 from new and existing clients.

Previous wording

Cost of Services. Cost of services increased by $49.5 million, or 10%, to $537.6 million for the three months ended September 30, 2024 from $488.1 million for the same period in 2023.

Current wording

Cost of Services. Cost of services increased by $22.2 million, or 5%, to $509.8 million for the three months ended March 31, 2025 from $487.6 million for the same period in 2024.

Previous wording

Cost of services in the full service center-based child care segment increased by $36.3 million, or 9%, to $421.3 million in the three months ended September 30, 2024 when compared to the same period in 2023. The increase in cost of services was primarily associated with increased personnel costs related to expanded enrollment and wage rate increases. Personnel costs, which generally represent 70% of the costs for this segment, increased 6% during the quarter compared to the same period in the prior year. In addition to the personnel costs for the incremental 3% 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 $13.2 million in the third 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 $5.0 million in the three months ended September 30, 2023.

Current wording

Cost of services in the full service center-based child care segment increased by $18.2 million, or 4%, to $422.1 million in the three months ended March 31, 2025 when compared to the same period in 2024. The increase in cost of services was primarily associated with increased personnel 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 to support the incremental 2% net enrollment noted above, we continue to invest in higher wages for our center staff, resulting in an increase of approximately 3-4% to the average hourly wage in 2025 compared to 2024.

Previous wording

Cost of services in the back-up care segment increased by $12.4 million, or 14%, to $101.3 million in the three months ended September 30, 2024, when compared to the prior year. 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.

Current wording

Cost of services in the back-up care segment increased by $3.8 million, or 6%, to $72.7 million in the three months ended March 31, 2025, when compared to the prior year. 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 technology to support our customer user experience and customer acquisition.

Previous wording

Cost of services in the educational advisory services segment increased by $0.8 million, or 5%, to $14.9 million in the three months ended September 30, 2024 when compared to the prior year, due to investments in personnel, product suite and technology to support customer access and user experience.

Current wording

Cost of services in the educational advisory services segment increased by $0.2 million, or 1%, to $14.9 million in the three months ended March 31, 2025 when compared to the prior year.

Previous wording

Gross Profit. Gross profit increased by $23.9 million, or 15%, to $181.5 million for the three months ended September 30, 2024 from $157.6 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 25% of revenue for the three months ended September 30, 2024, an increase of approximately 1% compared to the three months ended September 30, 2023.

Current wording

Gross Profit. Gross profit increased by $20.6 million, or 15%, to $155.7 million for the three months ended March 31, 2025 from $135.1 million for the same period in 2024 primarily due to 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. Gross profit margin was 23% of revenue for the three months ended March 31, 2025, an increase of approximately 2% compared to the three months ended March 31, 2024.

Previous wording

Selling, General and Administrative Expenses. SGA increased $16.6 million, or 7%, to $264.5 million for the nine months ended September 30, 2024 from $247.9 million for the same period in 2023, due to incremental spending to support the business as it continues to re-ramp post-pandemic, higher personnel 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 nine months ended September 30, 2023 included value-added tax expense of $1.7 million related to prior periods. SGA was 13% of revenue for the nine months ended September 30, 2024, a decrease of approximately 1% from the same period in 2023.

Current wording

Selling, General and Administrative Expenses (“SGA”). SGA increased by $4.3 million, or 5%, to $91.9 million for the three months ended March 31, 2025 from $87.5 million for the same period in 2024, due to higher personnel costs. SGA for the three months ended March 31, 2024, included a $2.3 million charge within the back-up care segment related to the early settlement of contingent consideration for a 2021 acquisition. SGA was 14% of revenue for the three months ended March 31, 2025, generally consistent with the same period in 2024.

Previous wording

Amortization of Intangible Assets. Amortization expense on intangible assets was $2.6 million for the three months ended September 30, 2024, a decrease from $7.6 million for the three months ended September 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.

Current wording

Amortization of Intangible Assets. Amortization expense on intangible assets was $1.6 million for the three months ended March 31, 2025, a decrease from $7.6 million for the three months ended March 31, 2024, 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 2024.

Previous wording

Income from Operations. Income from operations increased by $22.6 million, or 34%, to $89.4 million for the three months ended September 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 September 30, 2024 and 2023:

Current wording

Income from Operations. Income from operations increased by $22.3 million, or 56%, to $62.3 million for the three months ended March 31, 2025 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, 2025 and 2024:

Previous wording

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

Current wording

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

Previous wording

•Income from operations for the full service center-based child care segment increased $5.5 million, or 78%, in the three months ended September 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 personnel costs and a decrease of approximately $9 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.

Current wording

•Income from operations for the full service center-based child care segment increased $11.8 million, or 55%, in the three months ended March 31, 2025 when compared to the same period in 2024, primarily due to increases in tuition revenue from enrollment growth and annual tuition rate increases, partially offset by increased personnel costs.

Previous wording

•Income from operations for the back-up care segment increased $20.6 million, or 21%, in the nine months ended September 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 an allocation of shared services costs which have historically remained relatively stable throughout the year. Income from operations for the nine months ended September 30, 2024 included a $2.3 million charge related to the early settlement of contingent consideration for a 2021 acquisition and income from operations for the nine months ended September 30, 2023 included $4.3 million in value-added tax expense related to prior periods.

Current wording

•Income from operations for the back-up care segment increased $10.4 million, or 65%, in the three months ended March 31, 2025 when compared to the same period in 2024, primarily due to incremental gross profit contributions from expanded utilization of back-up care services. Income from operations for the three months ended March 31, 2024 included a $2.3 million charge related to the early settlement of contingent consideration for a 2021 acquisition.

Previous wording

Net Interest Expense. Net interest expense was $11.6 million for the three months ended September 30, 2024, a decrease from $12.2 million for the three months ended September 30, 2023, primarily due to a lack of interest expense in 2024 associated with the deferred payment for the Only About Children acquisition and contingent consideration for a 2021 acquisition, in addition to higher interest income and lower average borrowings, partially offset by higher interest rates applicable to our debt inclusive of the interest rate caps. The weighted average interest rate for the term loans and revolving credit facility was 4.84% for the three months ended September 30, 2024 compared to 3.90% for the three months ended September 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 approximate 5.00% for the remainder of 2024 inclusive of the effects of the cash flow hedges.

Current wording

Net Interest Expense. Net interest expense was $10.4 million for the three months ended March 31, 2025, a decrease from $13.7 million for the three months ended March 31, 2024, primarily due to lower average borrowings and interest rates applicable to our debt. The weighted average interest rate for the term loans and revolving credit facility was 4.39% for the three months ended March 31, 2025 compared to 5.05% for the three months ended March 31, 2024, 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 in the range of 4.75% to 5.00% for the remainder of 2025 inclusive of the effects of the cash flow hedges.

Previous wording

Income Tax Expense. We recorded income tax expense of $22.9 million during the three months ended September 30, 2024, at an effective income tax rate of 29%, compared to an income tax expense of $14.6 million during the three months ended September 30, 2023, at an effective income tax rate of 27%. 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 subsidiaries and the effects of net shortfall tax expense associated with the exercise or expiration of stock options and vesting of restricted stock. 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 $13.9 million during the three months ended March 31, 2025, at an effective income tax rate of 27%, compared to an income tax expense of $9.3 million during the three months ended March 31, 2024, at an effective income tax rate of 35%. 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 subsidiaries and the effects of net excess tax benefit (shortfall tax expense) associated with the exercise or expiration of stock options and vesting of restricted stock. 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 tax benefit (shortfall tax expense) associated with the exercise or expiration of stock options and vesting of restricted stock.

Previous wording

During the three months ended September 30, 2024 and 2023, the net shortfall tax expense from stock-based compensation increased tax expense by $0.2 million and $0.1 million, respectively. For the three months ended September 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.

Current wording

During the three months ended March 31, 2025, the net excess tax benefit from stock-based compensation decreased tax expense by $1.3 million. During the three months ended March 31, 2024, the net shortfall tax expense from stock-based compensation increased tax expense by $0.7 million. For the three months ended March 31, 2025 and 2024, prior to the inclusion of the excess tax benefit (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 $19.8 million, or 20%, and adjusted income from operations increased $22.6 million, or 34%, for the three months ended September 30, 2024 over the comparable period in 2023 primarily due to increased contributions from both the back-up care segment and the full service center-based child care segment.

Current wording

Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA increased $17.3 million, or 23%, and adjusted income from operations increased $22.3 million, or 56%, for the three months ended March 31, 2025 over the comparable period in 2024 primarily due to increased contributions from both the back-up care segment and the full service center-based child care segment.

Previous wording

Adjusted Net Income. Adjusted net income increased $13.8 million, or 27%, for the three months ended September 30, 2024 when compared to the same period in 2023, primarily due to the increase in adjusted income from operations and a lower tax rate.

Current wording

Adjusted Net Income. Adjusted net income increased $15.1 million, or 51%, for the three months ended March 31, 2025 when compared to the same period in 2024, primarily due to the increase in adjusted income from operations and lower interest expense.

Previous wording

(a)Amortization of intangible assets represents amortization expense, including amortization expense of $0.1 million and $5.0 million for the three months ended September 30, 2024 and 2023 respectively, and of $8.4 million and $15.0 million for the nine months ended September 30, 2024 and 2023, respectively, 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 $5.0 million for the three months ended March 31, 2024, associated with intangible assets recorded in connection with our going private transaction in May 2008.

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% and 29% for the three months ended September 30, 2024 and 2023, respectively, and at an effective tax rate of approximately 28% for the nine months ended September 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.

Current wording

(c)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, 2025 and 2024. 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

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 “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 depreciation, amortization, and stock-based compensation expense, and non-recurring costs, such as value-added-tax expense related to prior periods and at times, other non-recurring costs, such as impairment costs and 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. These non-GAAP financial measures also function as key performance indicators used to evaluate our operating performance internally, and they are used in connection with the determination of incentive compensation for management, including executive officers. Adjusted EBITDA is also used in connection with the determination of certain ratio requirements under our credit agreement.

Current wording

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 “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 depreciation, amortization, and stock-based compensation expense, and non-recurring costs, as applicable, such as impairment costs and 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. These non-GAAP financial measures also function as key performance indicators used to evaluate our operating performance internally, and they are used in connection with the determination of incentive compensation for management, including executive officers. Adjusted EBITDA is also used in connection with the determination of certain ratio requirements under our credit agreement.

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 $109.9 million in cash ($119.1 million including restricted cash) at September 30, 2024, of which $47.4 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% and 27% of our consolidated revenue in the nine months ended September 30, 2024 and 2023, respectively. The net impact on our liquidity from changes in foreign currency exchange rates was not material for the nine months ended September 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.

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 $112.0 million in cash ($124.0 million including restricted cash) at March 31, 2025, of which $59.5 million was held in foreign jurisdictions, compared to $110.3 million in cash ($123.7 million including restricted cash) at December 31, 2024, of which $45.5 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, 2025 and 2024. The net impact on our liquidity from changes in foreign currency exchange rates was not material for the three months ended March 31, 2025 and 2024. 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 2025.

Previous wording

Our $400 million revolving credit facility is part of our senior secured credit facilities. At September 30, 2024 and December 31, 2023, $389.8 million and $380.7 million of the revolving credit facility, respectively, was available for borrowing.

Current wording

Our $400 million revolving credit facility is part of our senior secured credit facilities. At March 31, 2025 and December 31, 2024, $384.8 million of the revolving credit facility was available for borrowing. On April 17, 2025, the Company amended its existing senior secured credit facilities to, among other changes, increase its revolving credit facility from $400 million to $900 million and extend the date of maturity. On the closing date, the Company used proceeds from its revolving credit facility to repay the outstanding balances under the term loan A facility. Refer to Note 12, Subsequent Event, for additional information.

Previous wording

We had a working capital deficit of $262.9 million and $352.5 million at September 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 continue to progress on the enrollment and ramping of centers, we expect to allocate capital to investments that support current operations and strategic opportunities, as well as principal and interest payments on our debt and revolver, and share repurchases from time to time.

Current wording

We had a working capital deficit of $295.8 million and $283.4 million at March 31, 2025 and December 31, 2024, 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 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 and revolver, and share repurchases from time to time.

Previous wording

As of September 30, 2024, we had $891.8 million in lease liabilities, $104.7 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 March 31, 2025, we had $849.8 million in lease liabilities, $103.3 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. During the nine months ended September 30, 2024 and 2023, we did not make any share repurchases under the Board-approved repurchase program, and at September 30, 2024, $198.3 million remained available for future repurchases. 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 three months ended March 31, 2025, we repurchased 0.2 million shares for $19.7 million. During the three months ended March 31, 2024, we did not make any share repurchases under the Board-approved repurchase program. All repurchased shares have been retired and, as of March 31, 2025, $94.0 million remained available for future repurchases.

Previous wording

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

Current wording

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 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.

Previous wording

Cash provided by operating activities was $216.8 million for the nine months ended September 30, 2024, compared to $161.0 million for the same period in 2023. The increase in cash provided by operations primarily relates to an increase in net income of $42.4 million, as well as higher cash provided by working capital arising from the timing of billings and payments when compared to the prior year.

Current wording

Cash provided by operating activities was $86.2 million for the three months ended March 31, 2025, compared to $116.3 million for the same period in 2024. The decrease in cash provided by operations primarily relates to less cash provided by working capital arising from the timing of billings and payments when compared to the prior year, partially offset by an increase in net income of $21.1 million.

Previous wording

Cash used in investing activities was $92.7 million for the nine months ended September 30, 2024 compared to $92.0 million for the same period in 2023. During the nine months ended September 30, 2024, we invested $8.3 million in acquisitions, compared to an investment of $37.8 million during the same period in the prior year, a decrease in cash used of $29.5 million. This decrease in cash used was partially offset by an increase in net purchases of debt securities and other investments. Net purchases of debt securities by our captive insurance entity, using restricted cash, and other investments were $19.1 million in the nine months ended September 30, 2024, compared to net proceeds of $6.0 million during the same period in the prior year, a net increase of cash used of $25.1 million. During the nine months ended September 30, 2024, we had net investments of $65.3 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 $60.2 million during the same period in the prior year.

Current wording

Cash used in investing activities was $14.5 million for the three months ended March 31, 2025 compared to $38.1 million for the same period in 2024. This decrease in cash used in investing activities primarily relates to a decrease in net purchases of debt securities and other investments. Net proceeds from debt securities held by our captive insurance entity and other investments were $0.7 million in the three months ended March 31, 2025, compared to net purchases of $16.2 million during the same period in the prior year, a net decrease of cash used of $16.9 million.