UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, ~~2021~~

2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number: 001-35780

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

Delaware

80-0188269

(State or other jurisdiction
of incorporation)

(I.R.S. Employer
Identification Number)

2 Wells Avenue

Newton, Massachusetts

02459

~~(Address~~(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (617) 673-8000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

BFAM

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April ~~30, 2021,~~25, 2022, there were ~~61,029,675~~59,403,190 shares of common stock outstanding.

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

FORM 10-Q

For the quarterly period ended March 31, ~~2021~~2022

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021

		(In thousands, except share data)					(In thousands, except share data)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	442,124	$	384,344	Cash and cash equivalents	$	257,227	$	260,980
Accounts receivable — net of allowance for credit losses of $2,168 and $2,357 at March 31, 2021 and December 31, 2020, respectively		166,642		176,617
Accounts receivable — net of allowance for credit losses of $3,032 and $3,006 at March 31, 2022 and December 31, 2021, respectively						Accounts receivable — net of allowance for credit losses of $3,032 and $3,006 at March 31, 2022 and December 31, 2021, respectively	187,705		210,971
Prepaid expenses and other current assets	Prepaid expenses and other current assets	72,608		62,902		Prepaid expenses and other current assets	76,141		68,320
Prepaid income taxes		4,780		322

Total current assets	Total current assets	686,154		624,185		Total current assets	521,073		540,271
Fixed assets — net	Fixed assets — net	622,716		628,757		Fixed assets — net	583,174		598,134
Goodwill	Goodwill	1,448,923		1,431,967		Goodwill	1,470,154		1,481,725
Other intangible assets — net	Other intangible assets — net	268,939		274,620		Other intangible assets — net	243,423		251,032
Operating lease right-of-use assets	Operating lease right-of-use assets	713,811		717,821		Operating lease right-of-use assets	683,547		696,425
Other assets	Other assets	49,122		49,298		Other assets	92,752		72,460
Total assets	Total assets	$	3,789,665	$	3,726,648	Total assets	$	3,594,123	$	3,640,047
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	10,750	$	10,750	Current portion of long-term debt	$	16,000	$	16,000

Accounts payable and accrued expenses	Accounts payable and accrued expenses	188,028		194,551		Accounts payable and accrued expenses	205,404		197,366
Current portion of operating lease liabilities	Current portion of operating lease liabilities	87,431		87,181		Current portion of operating lease liabilities	90,152		87,341
Deferred revenue	Deferred revenue	235,336		197,939		Deferred revenue	232,899		258,438
Other current liabilities	Other current liabilities	41,234		40,393		Other current liabilities	54,154		63,030
Total current liabilities	Total current liabilities	562,779		530,814		Total current liabilities	598,609		622,175
Long-term debt — net	Long-term debt — net	1,017,784		1,020,137		Long-term debt — net	972,692		976,396
Operating lease liabilities	Operating lease liabilities	724,918		729,754		Operating lease liabilities	689,629		703,911
Other long-term liabilities	Other long-term liabilities	115,768		105,980		Other long-term liabilities	96,327		100,091
Deferred revenue	Deferred revenue	10,241		10,215		Deferred revenue	9,428		9,689
Deferred income taxes	Deferred income taxes	47,550		45,951		Deferred income taxes	54,932		48,509
Total liabilities	Total liabilities	2,479,040		2,442,851		Total liabilities	2,421,617		2,460,771
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; 0 shares issued or outstanding at March 31, 2021 and December 31, 2020		0		0
Common stock, $0.001 par value; 475,000,000 shares authorized; 60,726,701 and 60,466,168 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		61		60
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at March 31, 2022 and December 31, 2021						Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at March 31, 2022 and December 31, 2021	—		—
Common stock, $0.001 par value; 475,000,000 shares authorized; 59,133,183 and 59,305,160 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively						Common stock, $0.001 par value; 475,000,000 shares authorized; 59,133,183 and 59,305,160 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	59		59
Additional paid-in capital	Additional paid-in capital	928,761		910,304		Additional paid-in capital	717,745		745,615
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(25,831)		(27,069)		Accumulated other comprehensive loss	(35,665)		(37,359)
Retained earnings	Retained earnings	407,634		400,502		Retained earnings	490,367		470,961
Total stockholders’ equity	Total stockholders’ equity	1,310,625		1,283,797		Total stockholders’ equity	1,172,506		1,179,276
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	3,789,665	$	3,726,648	Total liabilities and stockholders’ equity	$	3,594,123	$	3,640,047

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three months ended March 31,				Three months ended March 31,
		2021		2020				2022		2021

		(In thousands, except share data)						(In thousands, except share data)
Revenue	Revenue	$	390,840	$	506,323		Revenue	$	460,409	$	390,840
Cost of services	Cost of services	309,482		397,464			Cost of services	350,350		309,482
Gross profit	Gross profit	81,358		108,859			Gross profit	110,059		81,358
Selling, general and administrative expenses	Selling, general and administrative expenses	60,110		57,369			Selling, general and administrative expenses	71,746		60,110
Amortization of intangible assets	Amortization of intangible assets	7,540		8,209			Amortization of intangible assets	7,149		7,540

Income from operations	Income from operations	13,708		43,281			Income from operations	31,164		13,708
Interest expense — net	Interest expense — net	(9,016)		(10,206)			Interest expense — net	(7,046)		(9,016)
Income before income tax	Income before income tax	4,692		33,075			Income before income tax	24,118		4,692
Income tax benefit (expense)	Income tax benefit (expense)	2,440		(2,343)			Income tax benefit (expense)	(4,712)		2,440
Net income	Net income	$	7,132	$	30,732		Net income	$	19,406	$	7,132

Earnings per common share:	Earnings per common share:						Earnings per common share:
Common stock — basic	Common stock — basic	$	0.12	$	0.53		Common stock — basic	$	0.33	$	0.12
Common stock — diluted	Common stock — diluted	$	0.12	$	0.52		Common stock — diluted	$	0.33	$	0.12

Weighted average common shares outstanding:	Weighted average common shares outstanding:						Weighted average common shares outstanding:
Common stock — basic	Common stock — basic	60,594,947		57,930,909			Common stock — basic	59,094,724		60,594,947
Common stock — diluted	Common stock — diluted	61,325,973		58,878,784			Common stock — diluted	59,415,345		61,325,973

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited)


		Three months ended March 31,				Three months ended March 31,
		2021		2020				2022		2021

		(In thousands)						(In thousands)
Net income	Net income	$	7,132	$	30,732		Net income	$	19,406	$	7,132
Other comprehensive income (loss):	Other comprehensive income (loss):						Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	(514)		(39,508)			Foreign currency translation adjustments	(17,006)		(514)
Unrealized gain (loss) on cash flow hedges and investments, net of tax		1,752		(4,270)
Total other comprehensive income (loss)		1,238		(43,778)
Comprehensive income (loss)		$	8,370	$	(13,046)
Unrealized gain on cash flow hedges and investments, net of tax							Unrealized gain on cash flow hedges and investments, net of tax	18,700		1,752
Total other comprehensive income							Total other comprehensive income	1,694		1,238
Comprehensive income							Comprehensive income	$	21,100	$	8,370

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)


		Three months ended March 31, 2021														Three months ended March 31, 2022
		Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity			Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
		Shares	Amount													Shares	Amount

		(In thousands, except share data)														(In thousands, except share data)
Balance at January 1, 2021		60,466,168	$	60	$	910,304	$	0	$	(27,069)	$	400,502	$	1,283,797
Balance at January 1, 2022															Balance at January 1, 2022	59,305,160	$	59	$	745,615	$	—	$	(37,359)	$	470,961	$	1,179,276

Stock-based compensation expense	Stock-based compensation expense				5,306								5,306		Stock-based compensation expense				6,096								6,096
Issuance of common stock under the Equity Incentive Plan	Issuance of common stock under the Equity Incentive Plan	296,392	1		18,996								18,997		Issuance of common stock under the Equity Incentive Plan	165,517	1		8,894								8,895
Shares received in net share settlement of stock option exercises and vesting of restricted stock	Shares received in net share settlement of stock option exercises and vesting of restricted stock	(35,859)	—		(5,845)								(5,845)		Shares received in net share settlement of stock option exercises and vesting of restricted stock	(25,594)	—		(3,175)								(3,175)

Purchase of treasury stock															Purchase of treasury stock						(39,686)						(39,686)
Retirement of treasury stock															Retirement of treasury stock	(311,900)	(1)		(39,685)		39,686						—
Other comprehensive income	Other comprehensive income								1,238				1,238		Other comprehensive income								1,694				1,694
Net income	Net income										7,132		7,132		Net income										19,406		19,406
Balance at March 31, 2021		60,726,701	$	61	$	928,761	$	0	$	(25,831)	$	407,634	$	1,310,625
Balance at March 31, 2022															Balance at March 31, 2022	59,133,183	$	59	$	717,745	$	—	$	(35,665)	$	490,367	$	1,172,506

Three months ended March 31, 2020
Common Stock Additional
Paid-in
Capital Treasury Stock, at Cost Accumulated
Other
Comprehensive
Income (Loss) Retained Earnings Total
Stockholders’
Equity
Shares Amount
(In thousands, except share data)
Balance at January 1, 2020 57,884,020 $ 58 $ 648,031 $ 0 $ (50,331) $ 373,510 $ 971,268
Stock-based compensation expense 4,283 4,283
Issuance of common stock under the Equity Incentive Plan 298,876 1 12,461 12,462
Shares received in net share settlement of stock option exercises and vesting of restricted stock (31,429) — (5,231) (5,231)
Purchase of treasury stock (32,208) (32,208)
Retirement of treasury stock (231,313) (1) (32,207) 32,208 0
Other comprehensive loss (43,778) (43,778)
Net income 30,732 30,732
Balance at March 31, 2020 57,920,154 $ 58 $ 627,337 $ 0 $ (94,109) $ 404,242 $ 937,528


	Three months ended March 31, 2021
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount

	(In thousands, except share data)
Balance at January 1, 2021	60,466,168	$	60	$	910,304	$	—	$	(27,069)	$	400,502	$	1,283,797

Stock-based compensation expense				5,306								5,306
Issuance of common stock under the Equity Incentive Plan	296,392	1		18,996								18,997
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(35,859)	—		(5,845)								(5,845)


Other comprehensive income								1,238				1,238
Net income										7,132		7,132
Balance at March 31, 2021	60,726,701	$	61	$	928,761	$	—	$	(25,831)	$	407,634	$	1,310,625

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Three months ended March 31,					Three months ended March 31,
		2021		2020			2022		2021

		(In thousands)					(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	7,132	$	30,732	Net income	$	19,406	$	7,132
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	27,282		28,221		Depreciation and amortization	25,576		27,282
Impairment losses on long-lived assets		0		4,970

Stock-based compensation expense	Stock-based compensation expense	5,306		4,283		Stock-based compensation expense	6,096		5,306
Deferred income taxes	Deferred income taxes	1,016		(5,048)		Deferred income taxes	376		1,016
Other non-cash adjustments — net	Other non-cash adjustments — net	(964)		(691)		Other non-cash adjustments — net	159		(964)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	10,006		(23,421)		Accounts receivable	22,892		10,006
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(11,192)		(11,422)		Prepaid expenses and other current assets	(13,238)		(11,192)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(3,889)		24,529		Accounts payable and accrued expenses	10,621		(3,889)
Income taxes	Income taxes	(5,262)		1,367		Income taxes	272		(5,262)
Deferred revenue	Deferred revenue	37,706		(5,299)		Deferred revenue	(25,060)		37,706
Leases	Leases	(819)		16,839		Leases	1,513		(819)
Other assets	Other assets	3,660		1,894		Other assets	6,987		3,660
Other current and long-term liabilities	Other current and long-term liabilities	(1,687)		(2,871)		Other current and long-term liabilities	2,958		(1,687)
Net cash provided by operating activities	Net cash provided by operating activities	68,295		64,083		Net cash provided by operating activities	58,558		68,295

CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets	Purchases of fixed assets	(17,912)		(17,094)		Purchases of fixed assets	(11,595)		(17,912)
Proceeds from the disposal of fixed assets	Proceeds from the disposal of fixed assets	3,858		4,454		Proceeds from the disposal of fixed assets	—		3,858
Purchases of debt securities and other investments						Purchases of debt securities and other investments	(3,180)		(5,269)
Proceeds from the maturity of debt securities and sale of other investments	Proceeds from the maturity of debt securities and sale of other investments	6,000		3,247		Proceeds from the maturity of debt securities and sale of other investments	5,569		6,000
Purchases of debt securities and other investments		(5,269)		(42)

Payments and settlements for acquisitions — net of cash acquired	Payments and settlements for acquisitions — net of cash acquired	(8,961)		(3,529)		Payments and settlements for acquisitions — net of cash acquired	(147)		(8,961)
Net cash used in investing activities	Net cash used in investing activities	(22,284)		(12,964)		Net cash used in investing activities	(9,353)		(22,284)

CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under revolving credit facility		0		10,500
Payments under revolving credit facility		0		(10,500)

Principal payments of long-term debt	Principal payments of long-term debt	(2,688)		(2,688)		Principal payments of long-term debt	(4,000)		(2,688)

Purchase of treasury stock	Purchase of treasury stock	0		(32,658)		Purchase of treasury stock	(39,913)		—
Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase	Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase	22,432		15,962		Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase	8,823		22,432
Taxes paid related to the net share settlement of stock options and restricted stock	Taxes paid related to the net share settlement of stock options and restricted stock	(5,845)		(5,231)		Taxes paid related to the net share settlement of stock options and restricted stock	(3,174)		(5,845)

Payments of contingent consideration for acquisitions	Payments of contingent consideration for acquisitions	0		(1,088)		Payments of contingent consideration for acquisitions	(13,865)		—
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	13,899		(25,703)		Net cash provided by (used in) financing activities	(52,129)		13,899
Effect of exchange rates on cash, cash equivalents and restricted cash	Effect of exchange rates on cash, cash equivalents and restricted cash	(539)		(1,203)		Effect of exchange rates on cash, cash equivalents and restricted cash	(605)		(539)
Net increase in cash, cash equivalents and restricted cash		59,371		24,213
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	(3,529)		59,371
Cash, cash equivalents and restricted cash — beginning of period	Cash, cash equivalents and restricted cash — beginning of period	388,465		31,192		Cash, cash equivalents and restricted cash — beginning of period	265,281		388,465
Cash, cash equivalents and restricted cash — end of period	Cash, cash equivalents and restricted cash — end of period	$	447,836	$	55,405	Cash, cash equivalents and restricted cash — end of period	$	261,752	$	447,836

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)


		Three months ended March 31,					Three months ended March 31,
		2021		2020			2022		2021

		(In thousands)					(In thousands)
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:	RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:					RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	Cash and cash equivalents	$	442,124	$	49,230	Cash and cash equivalents	$	257,227	$	442,124
Restricted cash and cash equivalents, included in prepaid expenses and other current assets	Restricted cash and cash equivalents, included in prepaid expenses and other current assets	5,712		6,175		Restricted cash and cash equivalents, included in prepaid expenses and other current assets	4,525		5,712

Total cash, cash equivalents and restricted cash — end of period	Total cash, cash equivalents and restricted cash — end of period	$	447,836	$	55,405	Total cash, cash equivalents and restricted cash — end of period	$	261,752	$	447,836

SUPPLEMENTAL CASH FLOW INFORMATION:	SUPPLEMENTAL CASH FLOW INFORMATION:					SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest	Cash payments of interest	$	8,403	$	9,535	Cash payments of interest	$	6,168	$	8,403
Cash payments of income taxes	Cash payments of income taxes	$	1,980	$	6,026	Cash payments of income taxes	$	4,072	$	1,980
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities	$	36,964	$	29,130	Cash paid for amounts included in the measurement of lease liabilities	$	33,884	$	36,964

NON-CASH TRANSACTIONS:	NON-CASH TRANSACTIONS:					NON-CASH TRANSACTIONS:
Fixed asset purchases recorded in accounts payable and accrued expenses	Fixed asset purchases recorded in accounts payable and accrued expenses	$	2,556	$	3,514	Fixed asset purchases recorded in accounts payable and accrued expenses	$	1,074	$	2,556
Contingent consideration issued for acquisitions	Contingent consideration issued for acquisitions	$	6,518	$	0	Contingent consideration issued for acquisitions	$	—	$	6,518

Operating right-of-use assets obtained in exchange for operating lease liabilities — net	Operating right-of-use assets obtained in exchange for operating lease liabilities — net	$	18,412	$	56,825	Operating right-of-use assets obtained in exchange for operating lease liabilities — net	$	8,517	$	18,412
Restricted stock reclassified from other current liabilities to equity upon vesting	Restricted stock reclassified from other current liabilities to equity upon vesting	$	4,178	$	4,366	Restricted stock reclassified from other current liabilities to equity upon vesting	$	3,160	$	4,178

See accompanying notes to condensed consolidated financial statements.

Table of Contents

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization — Bright Horizons Family Solutions Inc. (“Bright Horizons” or the “Company”) provides center-based early education and child care, ~~and early education,~~ back-up child and adult/elder care, tuition assistance and student loan repayment program administration, educational advisory services, and other support services for employers and families in the United States, the United Kingdom, the Netherlands, Puerto Rico and India. The Company provides services designed to help families, employers and their employees better integrate work and family life, primarily under multi-year contracts with employers who offer child care, dependent care, and workforce education services, as part of their employee benefits packages in an effort to support employees across life and career stages and improve employee engagement.

Basis of Presentation — The accompanying unaudited condensed consolidated balance sheet as of March 31, ~~2021~~2022 and the condensed consolidated statements of income, comprehensive income, ~~(loss),~~ changes in stockholders’ equity, and cash flows for the interim periods ended March 31, ~~2021~~2022 and ~~2020~~2021 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required in accordance with U.S. GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts within the condensed consolidated balance sheet and supplemental statement of cash flows information to conform to the current period presentation.

In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of March 31, ~~2021~~2022 and the condensed consolidated statements of income, comprehensive income, ~~(loss),~~ changes in stockholders’ equity, and cash flows for the interim periods ended March 31, ~~2021~~2022 and ~~2020,~~2021, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

Stockholders’ Equity — The board of directors of the Company authorized a share repurchase program of up to ~~$300~~$400 million of the Company’s outstanding common stock effective ~~June 12, 2018.~~December 16, 2021. The share repurchase program has no expiration ~~date.~~date and replaced the prior June 2018 authorization. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, under Rule 10b5-1 plans, or by other means in accordance with federal securities laws. During the three months ended March 31, ~~2021, there were no share repurchases and at~~2022, the Company repurchased 0.3 million shares for $39.7 million. At March 31, ~~2021, $194.9~~2022, $340.9 million remained available under the repurchase program.

~~On April 21, 2020,~~ During the Company completed the issuance and sale of 2,138,580 shares of common stock, par value $0.001 per share, to Durable Capital Master Fund LP at a price of $116.90 per share. The Company subsequently filed a registration statement to register the resale of these shares in accordance with the terms of the purchase agreement. The Company received net proceeds from the offering of $249.8 million.

~~COVID-19 Pandemic~~ ~~— Since March 2020, the Company's global operations have been significantly impacted by the COVID-19 pandemic. As of~~three months ended March 31, 2021, ~~the Company operated 1,015 child care and early education centers, of which approximately 900 child care and early education centers~~there were open. The Company remains focused on the re-enrollment of its centers and the phased re-opening of the limited number of centers that remain temporarily closed, which the Company expects will continue throughout 2021. The broad and long-term effects of COVID-19, its duration and scope of the ongoing disruption, cannot be predicted. Given these factors, the Company currently expects the effects of COVID-19 to continue to adversely impact the results of its operations for the remainder of 2021.no share repurchases. All repurchased shares have been retired.

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Government Support — ~~The Coronavirus Aid, Relief,~~During the three months ended March 31, 2022 and ~~Economic Security Act (“CARES Act”) was enacted on March 27, 2020~~2021, the Company participated in ~~the United States, which is an economic aid package to help mitigate the impact of the pandemic. Additionally, other foreign governmental legislation~~government support programs that ~~provides relief provisions has been~~were enacted in response to the economic impact of ~~COVID-19. The Company has participated in certain government support programs,~~the COVID-19 pandemic, including availing itself of certain tax deferrals, ~~and~~ tax credits ~~allowed pursuant to the CARES Act~~and federal block grant funding in the United States, as well as ~~certain tax deferrals, tax credits, and~~ employee wage support in the United Kingdom. On December 27, 2020, the employee retention tax credit, originally enacted under the CARES Act in the United States, was expanded and extended under the Consolidated Appropriations Act, 2021 (“CAA”) beginning January 1, 2021. The CAA extended the availability of the employee retention tax credit to wages paid through the first two quarters of 2021, among other changes. Governmental support received is recorded on the consolidated statement of income as a reduction to the related expenses that the assistance is intended to defray.

During the three months ended March 31, 2022 and 2021, $25.3 million and $9.6 million, respectively, was recorded as a reduction to cost of services in relation to these ~~benefits.~~benefits, of which $9.5 million and $2.9 million, respectively, reduced the operating subsidy revenue due from employers for the related child care centers. Additionally during the three months ended March 31, 2022, amounts received for tuition support of $2.0 million were recorded to revenue. As of March 31, ~~2021~~2022 and December 31, ~~2020, $13.1~~2021, $4.0 million and ~~$8.4~~$3.3 million, respectively, was recorded in prepaid expenses and other current assets on the consolidated balance sheet for amounts due from government support ~~programs, respectively. Additionally, the Company had payroll tax deferrals totaling $20.4~~programs. As of March 31, 2022 and December 31, 2021, $2.6 million and $3.9 million was recorded to other current liabilities related to government support received related to future periods, and as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, payroll tax deferrals of ~~which $10.2~~$7.0 million ~~was~~were recorded in accounts payable and accrued expenses ~~and $10.2 million was included in other long-term liabilities.~~

~~Recently Adopted Pronouncement~~ ~~— In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~. The standard removes certain exceptions to the general principles in Topic 740 and improves the consistent application of U.S. GAAP by clarifying and amending certain areas of the existing guidance. The Company adopted the new guidance on January 1, 2021. The adoption of this standard did not have a material impact on the ~~Company’s~~ consolidated ~~financial statements and related disclosures.~~balance sheet.

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2. REVENUE RECOGNITION

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into segments and geographical regions. Revenue disaggregated by segment and geographical region was as follows:


		Full service center-based child care		Back-up care		Educational advisory and other services		Total			Full service center-based child care		Back-up care		Educational advisory and other services		Total

											(In thousands)
Three months ended March 31, 2022										Three months ended March 31, 2022
North America										North America	$	243,237	$	75,929	$	25,633	$	344,799
Europe										Europe	110,695		4,915		—		115,610
		(In thousands)									$	353,932	$	80,844	$	25,633	$	460,409
Three months ended March 31, 2021	Three months ended March 31, 2021									Three months ended March 31, 2021
North America	North America	$	192,454	$	71,182	$	24,166	$	287,802	North America	$	192,454	$	71,182	$	24,166	$	287,802
Europe	Europe	97,865		5,173		0		103,038		Europe	97,865		5,173		—		103,038
		$	290,319	$	76,355	$	24,166	$	390,840		$	290,319	$	76,355	$	24,166	$	390,840
Three months ended March 31, 2020
North America		$	298,067	$	70,557	$	20,765	$	389,389
Europe		113,324		3,610		0		116,934
		$	411,391	$	74,167	$	20,765	$	506,323

The classification “North America” is comprised of the Company’s United States and Puerto Rico ~~and Canada~~ operations and the classification “Europe” includes the United Kingdom, Netherlands, and India operations. ~~During the third quarter of fiscal 2020, the Company divested its child care center business in Canada and ceased to operate its 2 centers in that geography.~~

Deferred Revenue

The Company records deferred revenue when payments are received in advance of the Company’s performance under the contract, which is recognized as revenue as the performance obligation is satisfied. During the three months ended March 31, 2022 and 2021, $136.5 million and $107.0 million was recognized as revenue related to the deferred revenue balance recorded at December 31, ~~2020. During the three months ended March~~2021 and December 31, 2020, ~~$123.8 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2019.~~respectively.

Remaining Performance Obligations

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original contract term of one year or less, or for variable consideration allocated to the unsatisfied performance obligation of a series of services. The transaction price allocated to the remaining performance obligations relates to services that are paid or invoiced in advance. The Company’s remaining performance obligations not subject to the practical expedients were not material.

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3. LEASES

The Company has operating leases for certain of its full service and back-up early education and child care ~~and early education~~ centers, corporate offices, call centers, and to a lesser extent, various office equipment, in the United States, the United Kingdom, and the Netherlands. Most of the leases expire within 10 to 15 years and many contain renewal options and/or termination provisions. ~~The Company does not have any finance leases as~~As of March 31, ~~2021.~~2022 and December 31, 2021, there were no material finance leases.

Lease Expense

The components of lease expense were as follows:


		Three months ended March 31,				Three months ended March 31,
		2021		2020				2022		2021

		(In thousands)						(In thousands)
Operating lease expense (1)	Operating lease expense (1)	$	33,625	$	33,861		Operating lease expense (1)	$	32,528	$	33,625
Variable lease expense (1)	Variable lease expense (1)	6,942		9,233			Variable lease expense (1)	9,944		6,942
Total lease expense	Total lease expense	$	40,567	$	43,094		Total lease expense	$	42,472	$	40,567

(1) Excludes short-term lease expense and sublease income, which were immaterial for the periods presented.

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Other Information

The weighted average remaining lease term and the weighted average discount rate were as follows:


		March 31, 2021	December 31, 2020		March 31, 2022	December 31, 2021

Weighted average remaining lease term (in years)	Weighted average remaining lease term (in years)	10	10	Weighted average remaining lease term (in years)	10	10
Weighted average discount rate	Weighted average discount rate	6.0%	6.0%	Weighted average discount rate	5.8%	5.8%

Maturity of Lease Liabilities

The following table summarizes the maturity of lease liabilities as of March 31, ~~2021:~~2022:


		Operating Leases			Operating Leases

		(In thousands)			(In thousands)
Remainder of 2021		$	90,174
2022		132,517
Remainder of 2022				Remainder of 2022	$	89,548
2023	2023	123,996		2023	129,928
2024	2024	113,079		2024	119,567
2025	2025	98,485		2025	106,339
2026				2026	97,691
Thereafter	Thereafter	532,595		Thereafter	485,100
Total lease payments	Total lease payments	1,090,846		Total lease payments	1,028,173
Less imputed interest	Less imputed interest	(278,497)		Less imputed interest	(248,392)
Present value of lease liabilities	Present value of lease liabilities	812,349		Present value of lease liabilities	779,781
Less current portion of operating lease liabilities	Less current portion of operating lease liabilities	(87,431)		Less current portion of operating lease liabilities	(90,152)
Long-term operating lease liabilities	Long-term operating lease liabilities	$	724,918	Long-term operating lease liabilities	$	689,629

As of March 31, ~~2021,~~2022, the Company had entered into additional operating leases that have not yet commenced with total fixed payment obligations of ~~$24.5~~$30.9 million. The leases are expected to commence between the second ~~quarter of fiscal 2021~~ and ~~the~~ fourth quarter of fiscal 2022 and have initial lease terms of approximately 10 to 15 years.

~~Lease Modifications~~

As of March 31, 2021, the Company had deferred lease payments of $3.5 million. The majority of these lease payments are payable over the next year. As of December 31, 2020, the Company had deferred lease payments of $7.7 million.

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4. ACQUISITIONS

The Company’s growth strategy includes expansion through strategic and synergistic acquisitions. The goodwill resulting from these acquisitions arises largely from synergies expected from combining the operations of the businesses acquired with the Company's existing operations, including cost efficiencies and leveraging existing client relationships, as well as from benefits derived from gaining the related assembled workforce.

~~2021 Acquisitions~~

During the three months ended March 31, 2022, the Company paid contingent consideration of $19.1 million related to an acquisition completed in 2019 and contingent consideration of $0.2 million related to an acquisition completed in 2021. Of the total amounts paid of $19.3 million, $13.9 million had been recorded as a liability at the date of acquisition.

2021 Acquisitions

During the year ended December 31, 2021, the Company acquired 2 centers as well as a school-age camp ~~and back-up care~~ provider in the United States, 13 centers in 2the United Kingdom, and 3 centers in the Netherlands, in 5 separate business acquisitions, which were each accounted for as a business combination. These businesses were acquired for an aggregate cash consideration of ~~$8.6~~$53.2 million, net of cash acquired of ~~$0.4~~$2.2 million, and consideration payable of $0.6 million. Additionally, the Company is subject to contingent consideration payments for 2 of these ~~two acquisitions.~~acquisitions, and recorded a fair value estimate of $7.3 million in relation to these contingent consideration arrangements at acquisition. Contingent consideration of up to $1.2 million ~~may be~~was payable within one year from the date of acquisition if certain performance targets ~~are~~were met for ~~one~~1 of the acquisitions, ~~and contingent~~of which $0.8 million has been paid based on the performance targets met. Contingent consideration is payable in 2026 based on certain financial metrics for the other acquisition. The Company recorded ~~a preliminary fair value estimate of $6.5 million in relation to these contingent consideration arrangements at acquisition. The Company recorded~~ goodwill of ~~$13.2 million related to the back-up care segment and of $3.7~~$39.5 million related to the full service center-based child care segment, of which $3.4 million will be deductible for tax purposes, and $14.6 million related to the back-up care segment, all of which will be deductible for tax purposes. In addition, the Company recorded intangible assets of ~~$1.8~~$5.7 million that will be amortized over five years, as well as fixed assets of ~~$1.5~~$10.1 million in relation to these acquisitions.

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The ~~determination and~~ allocation of purchase price consideration is based on preliminary estimates of fair value; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of March 31, ~~2021,~~2022, the purchase price allocations for ~~these acquisitions remain open as the Company gathers additional information regarding the assets acquired and the liabilities assumed, and finalizes its determination~~three of the estimated fair value of the contingent consideration at the date of acquisition. The operating results for the acquired businesses are included in the consolidated results of operations from the date of acquisition, and were not material to the Company’s financial results.

~~2020 Acquisitions~~

During the year ended December 31, 2020, the Company acquired 2 child care centers and the Sittercity business, an online marketplace for families and caregivers, in the United States, in 3 separate business acquisitions, which were each accounted for as a business combination. These businesses were acquired for cash consideration of $8.1 million, net of cash acquired of $1.3 million, and consideration payable of $0.1 million, and included fixed assets and technology of $4.1 million, as well as a trade name of $0.7 million that will be amortized over five years. The Company recorded goodwill of $2.0 million related to the educational advisory and other services segment and $2.1 million related to the full-service center-based child care segment, all of which will be deductible for tax purposes.

The determination and allocation of purchase price consideration is based on preliminary estimates of fair value; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of March 31, 2021, the purchase price allocations for 2 of the 2020 acquisitions remain open as the Company gathers additional information regarding the assets acquired and the liabilities assumed.

During the year ended December 31, ~~2020,~~2021, the Company paid ~~$1.2~~$0.6 million for contingent consideration related to acquisitions completed in ~~2018 and 2019,~~2021, which had been recorded as a liability at the date of acquisition.

5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill were as follows:

Full service
center-based
child care Back-up care Educational
advisory and other services Total
(In thousands)
Balance at January 1, 2021 $ 1,197,658 $ 194,616 $ 39,693 $ 1,431,967
Additions from acquisitions 3,675 13,239 0 16,914
Adjustments to prior year acquisitions 0 0 150 150
Effect of foreign currency translation (302) 194 0 (108)
Balance at March 31, 2021 $ 1,201,031 $ 208,049 $ 39,843 $ 1,448,923

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	Full service center-based child care		Back-up care		Educational advisory and other services		Total

	(In thousands)




Balance at January 1, 2022	$	1,233,096	$	208,786	$	39,843	$	1,481,725

Adjustments to prior year acquisitions	350		—		—		350
Effect of foreign currency translation	(11,213)		(708)		—		(11,921)
Balance at March 31, 2022	$	1,222,233	$	208,078	$	39,843	$	1,470,154

The Company also has intangible assets, which consisted of the following at March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:


March 31, 2021		Weighted average amortization period	Cost		Accumulated amortization		Net carrying amount
March 31, 2022									March 31, 2022	Weighted average amortization period	Cost		Accumulated amortization		Net carrying amount

			(In thousands)								(In thousands)
Definite-lived intangible assets:	Definite-lived intangible assets:								Definite-lived intangible assets:
Customer relationships	Customer relationships	14 years	$	402,872	$	(317,979)	$	84,893	Customer relationships	14 years	$	399,161	$	(338,276)	$	60,885
Trade names	Trade names	6 years	12,716		(9,823)		2,893		Trade names	6 years	12,123		(10,388)		1,735
			415,588		(327,802)		87,786				411,284		(348,664)		62,620
Indefinite-lived intangible assets:	Indefinite-lived intangible assets:								Indefinite-lived intangible assets:
Trade names	Trade names	N/A	181,153		—		181,153		Trade names	N/A	180,803		—		180,803
			$	596,741	$	(327,802)	$	268,939			$	592,087	$	(348,664)	$	243,423


December 31, 2020		Weighted average amortization period	Cost		Accumulated amortization		Net carrying amount
December 31, 2021									December 31, 2021	Weighted average amortization period	Cost		Accumulated amortization		Net carrying amount

			(In thousands)								(In thousands)
Definite-lived intangible assets:	Definite-lived intangible assets:								Definite-lived intangible assets:
Customer relationships	Customer relationships	14 years	$	402,319	$	(310,587)	$	91,732	Customer relationships	14 years	$	400,399	$	(332,571)	$	67,828
Trade names	Trade names	6 years	11,219		(9,633)		1,586		Trade names	6 years	12,358		(10,150)		2,208
			413,538		(320,220)		93,318				412,757		(342,721)		70,036
Indefinite-lived intangible assets:	Indefinite-lived intangible assets:								Indefinite-lived intangible assets:
Trade names	Trade names	N/A	181,302		—		181,302		Trade names	N/A	180,996		—		180,996
			$	594,840	$	(320,220)	$	274,620			$	593,753	$	(342,721)	$	251,032

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The Company estimates that it will record amortization expense related to intangible assets existing as of March 31, 2022 as follows over the next five years:


	Estimated amortization expense
	(In thousands)
Remainder of 2022	$	21,008
2023	$	26,601
2024	$	12,174
2025	$	1,974
2026	$	971

6. CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS

Senior Secured Credit Facilities

The ~~Company’s~~Company's senior secured credit facilities consist of a ~~secured~~ term loan B facility of $600 million (“term loan ~~facility”~~B”) and a term loan A facility of $400 million (“term loan A”), collectively the “term loan facilities” or “term loans,” as well as a $400 million multi-currency revolving credit facility (“revolving credit facility”). ~~The~~Long term ~~loan matures on November 7, 2023 and requires quarterly principal payments of $2.7 million, with the remaining principal balance due on November 7, 2023.~~

~~Outstanding term loan borrowings~~debt obligations were as follows:

March 31, 2021 December 31, 2020
(In thousands)
Term loan $ 1,032,000 $ 1,034,688
Deferred financing costs and original issue discount (3,466) (3,801)
Total debt 1,028,534 1,030,887
Less current maturities (10,750) (10,750)
Long-term debt $ 1,017,784 $ 1,020,137

In April and May 2020, the Company amended its existing senior credit facilities to, among other things, increase the borrowing capacity of the revolving credit facility from $225 million to $400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants. In conjunction with these credit amendments, the Company incurred $2.8 million in fees that have been capitalized in other assets on the consolidated balance sheet and will be amortized over the remaining life of the revolving credit facility. The revolving credit facility matures on July 31, 2022. There were 0 borrowings outstanding on the revolving credit facility at March 31, 2021 and December 31, 2020.

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	March 31, 2022		December 31, 2021
	(In thousands)
Term loan B	$	598,500	$	600,000
Term loan A	397,500		400,000
Deferred financing costs and original issue discount	(7,308)		(7,604)
Total debt	988,692		992,396
Less current maturities	(16,000)		(16,000)
Long-term debt	$	972,692	$	976,396

All borrowings under the credit ~~agreement~~facilities are subject to variable interest. The effective interest rate for the term ~~loan~~loans was ~~2.50%~~2.53% and 2.29% at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and the weighted average interest rate was ~~2.50%~~2.34% and ~~3.42%~~2.50% for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, prior to the effects of any interest rate hedge arrangements. The weighted average interest rate for the revolving credit facility was ~~4.50%~~4.25% and ~~5.41%~~4.50% for the three months ended March 31, 2022 and 2021, respectively.

Term Loan B Facility

The seven year term loan B matures on November 23, 2028 and ~~2020, respectively.~~requires quarterly principal payments equal to 1% per annum of the original aggregate principal amount of the term loan B, with the remaining principal balance due at maturity. Borrowings under the term loan B facility bear interest at a rate per annum of 1.25% over the base rate, or 2.25% over the eurocurrency rate. The eurocurrency rate is the one, three or six month LIBOR rate or, with applicable lender approval, the nine or twelve month or less than one month LIBOR rate, subject to an interest rate floor of 0.50%. The base rate is subject to an interest rate floor of 1.50%.

Term Loan A Facility

The five year term loan A matures on November 23, 2026 and requires quarterly principal payments equal to 2.5% per annum of the original aggregate principal amount of the term loan A in each of the first three years, 5.0% in the fourth year, and 7.5% in the fifth year. The remaining principal balance is due at maturity. Borrowings under the term loan A facility bear interest at a rate per annum ranging from 0.50% to 0.75% over the base rate, subject to an interest rate floor of 1.00%, or 1.50% to 1.75% over the eurocurrency rate. The eurocurrency rate is the one, three or six month LIBOR rate or, with applicable lender approval, the nine or twelve month or less than one month LIBOR rate.

Revolving Credit Facility

The $400 million multi-currency revolving credit facility matures on May 26, 2026. There were no borrowings outstanding on the revolving credit facility at both March 31, 2022 and December 31, 2021.

Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 0.50% to 0.75% over the base rate, subject to an interest rate floor of 1.00%, or 1.50% to 1.75% over the eurocurrency rate.

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Debt Covenants

All obligations under the senior secured credit facilities are secured by substantially all the assets of the Company’s material U.S. subsidiaries. The senior secured credit facilities contain a number of covenants that, among other things and subject to certain exceptions, may restrict the ability of Bright Horizons Family Solutions LLC, the Company’s wholly-owned subsidiary, and its restricted subsidiaries, to: incur ~~certain~~ liens; make investments, loans, advances and acquisitions; incur additional indebtedness or guarantees; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; engage in transactions with affiliates; sell assets, including capital stock of the Company’s subsidiaries; alter the business conducted; enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends; and consolidate or merge.

In addition, the credit agreement governing the senior secured credit facilities requires Bright Horizons Capital Corp., the ~~Company’s~~Company's direct subsidiary, to be a passive holding company, subject to certain exceptions. ~~Effective as of April 24, 2020,~~The term loan A and the revolving credit facility ~~requires~~require Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a maximum first lien ~~gross leverage ratio for four fiscal quarters starting with the second quarter of 2020, followed by a maximum first lien~~ net leverage ratio ~~in the quarters thereafter. The maximum first lien gross leverage ratio was 7.50~~not to 1.00 for the fiscal quarter ending March 31, 2021. Beginning with the fiscal quarter ending June 30, 2021, the Company will be required to comply with its previous maximum first lien net leverage ratio ofexceed 4.25 to 1.00. A breach of the applicable covenant is subject to certain equity cure rights. ~~Prior to the April 2020 credit amendment, the Company was required to comply with a maximum first lien net leverage ratio.~~

Future principal payments of long-term debt are as follows for the years ending December 31:


		Term Loan			Long-term debt

		(In thousands)			(In thousands)
Remainder of 2021		$	8,062
2022		10,750
Remainder of 2022				Remainder of 2022	$	12,000
2023	2023	1,013,188		2023	16,000

2024				2024	18,500
2025				2025	28,500
2026				2026	351,000
Thereafter				Thereafter	570,000
Total future principal payments	Total future principal payments	$	1,032,000	Total future principal payments	$	996,000

Derivative Financial Instruments

The Company is subject to interest rate risk as all borrowings under the senior secured credit facilities are subject to variable interest rates. ~~In October 2017, the Company entered into variable-to-fixed~~The Company's risk management policy permits using derivative instruments to manage interest rate ~~swap agreements~~and other risks. The Company uses interest rate swaps and caps to ~~mitigate the exposure to variable interest arrangements on $500 million notional amount~~manage a portion of the ~~outstanding term loan borrowings. These swap agreements, designated and accounted for as~~risk related to changes in cash ~~flow hedges~~flows from ~~inception, are scheduled to mature on October 31, 2021. The Company is required to make monthly payments on the notional amount at a fixed average~~ interest rate plus the applicable rate for eurocurrency loans. Effective as of May 31, 2018, the notional amount is subject to a total interest rate of approximately 3.65%. In exchange, the Company receives interest on the notional amount at a variable rate based on the one-month LIBOR rate, subject to a 0.75% floor.

movements. In June 2020, the Company entered into interest rate cap agreements with a total notional value of $800 million, designated and accounted for as cash flow hedges from inception, to provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 1%. Interest rate cap agreements for $300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $500 million notional amount have an effective date of October 29, 2021 and expire on October 31, 2023.

In December 2021, the Company entered into additional interest rate cap agreements with a total notional value of $900 million designated and accounted for as cash flow hedges from inception. Interest rate cap agreements for $600 million, which have a forward starting effective date of October ~~29, 2021, which coincides with the maturity of the interest rate swap agreements,~~31, 2023 and expire on October 31, ~~2023.~~

~~The~~2025, provide the Company with interest rate ~~swaps~~protection in the event the one-month LIBOR rate increases above 2.5%. Interest rate cap agreements for $300 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, 2026, provide the Company with interest rate ~~caps are recorded on the Company’s consolidated balance sheet at fair value and classified based on the instruments’ maturity dates. The Company records gains and losses resulting from changes~~protection in the ~~fair value of~~event the ~~interest~~one-month LIBOR rate swaps and interest rate caps to accumulated other comprehensive income or loss. These gains and losses are subsequently reclassified into earnings and recognized to interest expense in the Company’s consolidated statement of income in the period that the hedged interest expense on the term loan facility is recognized. The premium paid for the interest rate cap was recorded as an asset and will be allocated to each of the individual hedged interest payments on the basis of their relative fair values. The change in each respective allocated fair value amount will be reclassified out of accumulated other comprehensive income when each of the hedged forecasted transactions impacts earnings and recognized to interest expense in the Company's consolidated statement of income.

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increases above 3.0%.

The fair value of the derivative financial instruments was as ~~follows:~~follows for the periods presented:


Derivative financial instruments	Derivative financial instruments	Consolidated balance sheet classification	March 31, 2021		December 31, 2020		Derivative financial instruments	Consolidated balance sheet classification	March 31, 2022		December 31, 2021

			(In thousands)						(In thousands)
Interest rate swaps - liability		Other current liabilities	$	3,353	$	4,775
Interest rate caps - asset	Interest rate caps - asset	Other assets	$	1,270	$	277	Interest rate caps - asset	Other assets	$	33,722	$	8,809

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The effect of the derivative financial instruments on other comprehensive income (loss) was as follows:


Derivatives designated as cash flow hedging instruments	Derivatives designated as cash flow hedging instruments	Amount of gain (loss) recognized in other comprehensive income (loss)		Consolidated statement of income classification	Amount of net gain (loss) reclassified into earnings		Total effect on other comprehensive income (loss)		Derivatives designated as cash flow hedging instruments	Amount of gain (loss) recognized in other comprehensive income (loss)		Consolidated statement of income classification	Amount of net gain (loss) reclassified into earnings		Total effect on other comprehensive income (loss)

										(In thousands)			(In thousands)
Three months ended March 31, 2022									Three months ended March 31, 2022
Cash flow hedges									Cash flow hedges	$	24,913	Interest expense — net	$	(103)	$	25,016
Income tax effect									Income tax effect	(6,652)		Income tax expense	(449)		(6,203)
Net of income taxes									Net of income taxes	$	18,261		$	(552)	$	18,813
		(In thousands)			(In thousands)
Three months ended March 31, 2021	Three months ended March 31, 2021								Three months ended March 31, 2021
Cash flow hedges	Cash flow hedges	$	978	Interest expense — net	$	(1,450)	$	2,428	Cash flow hedges	$	978	Interest expense — net	$	(1,450)	$	2,428
Income tax effect	Income tax effect	(261)		Income tax expense	387		(648)		Income tax effect	(261)		Income tax expense	387		(648)
Net of income taxes	Net of income taxes	$	717		$	(1,063)	$	1,780	Net of income taxes	$	717		$	(1,063)	$	1,780

Three months ended March 31, 2020
Cash flow hedges		$	(6,302)	Interest expense — net	$	(285)	$	(6,017)
Income tax effect		1,695		Income tax expense	77		1,618
Net of income taxes		$	(4,607)		$	(208)	$	(4,399)

During the next twelve months, the Company estimates that a net ~~loss~~gain of ~~$3.6~~$6.2 million, pre-tax, will be reclassified from accumulated other comprehensive income (loss) and recorded as a reduction to interest expense related to these derivative financial instruments.

7. EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted earnings per share using the two-class method:


		Three months ended March 31,					Three months ended March 31,
		2021		2020					2022		2021

		(In thousands, except share data)							(In thousands, except share data)
Basic earnings per share:	Basic earnings per share:							Basic earnings per share:
Net income	Net income	$	7,132	$	30,732			Net income	$	19,406	$	7,132
Allocation of net income to common stockholders:	Allocation of net income to common stockholders:					Allocation of net income to common stockholders:
Common stock	Common stock	$	7,105	$	30,587			Common stock	$	19,324	$	7,105
Unvested participating shares	Unvested participating shares	27		145				Unvested participating shares	82		27
Net income	Net income	$	7,132	$	30,732			Net income	$	19,406	$	7,132

Weighted average common shares outstanding:	Weighted average common shares outstanding:					Weighted average common shares outstanding:
Common stock	Common stock	60,594,947		57,930,909				Common stock	59,094,724		60,594,947
Unvested participating shares	Unvested participating shares	235,184		274,801				Unvested participating shares	250,399		235,184
Earnings per common share:	Earnings per common share:							Earnings per common share:
Common stock	Common stock	$	0.12	$	0.53			Common stock	$	0.33	$	0.12

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		Three months ended March 31,					Three months ended March 31,
		2021		2020					2022		2021

		(In thousands, except share data)							(In thousands, except share data)
Diluted earnings per share:	Diluted earnings per share:							Diluted earnings per share:
Earnings allocated to common stock	Earnings allocated to common stock	$	7,105	$	30,587			Earnings allocated to common stock	$	19,324	$	7,105
Plus: earnings allocated to unvested participating shares	Plus: earnings allocated to unvested participating shares	27		145				Plus: earnings allocated to unvested participating shares	82		27
Less: adjusted earnings allocated to unvested participating shares	Less: adjusted earnings allocated to unvested participating shares	(27)		(143)				Less: adjusted earnings allocated to unvested participating shares	(82)		(27)
Earnings allocated to common stock	Earnings allocated to common stock	$	7,105	$	30,589			Earnings allocated to common stock	$	19,324	$	7,105

Weighted average common shares outstanding:	Weighted average common shares outstanding:					Weighted average common shares outstanding:
Common stock	Common stock	60,594,947		57,930,909				Common stock	59,094,724		60,594,947
Effect of dilutive securities	Effect of dilutive securities	731,026		947,875				Effect of dilutive securities	320,621		731,026
Weighted average common shares outstanding — diluted	Weighted average common shares outstanding — diluted	61,325,973		58,878,784				Weighted average common shares outstanding — diluted	59,415,345		61,325,973
Earnings per common share:	Earnings per common share:							Earnings per common share:
Common stock	Common stock	$	0.12	$	0.52			Common stock	$	0.33	$	0.12

Options outstanding to purchase ~~0.8~~1.2 million and ~~0.5~~0.8 million shares of common stock were excluded from diluted earnings per share for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, since their effect was anti-dilutive. These options may become dilutive in the future.

8. INCOME TAXES

The Company’s effective income tax rates were 19.5% and (52.0)% ~~and 7.1%~~ for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including changes to income ~~(loss)~~ before income tax, jurisdictional mix of income ~~(loss)~~ before income tax, valuation allowances, jurisdictional income tax rate changes, as well as discrete items such as the settlement of foreign, federal and state tax issues and the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted ~~stock, which is included as a reduction of tax expense.~~stock. During the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, the excess tax benefit from stock-based compensation expense decreased tax expense by ~~$3.9~~$2.0 million and ~~$6.9~~$3.9 million, respectively. For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, prior to the inclusion of the excess tax benefit and other discrete items, the effective income tax rate approximated 27% and 28%., respectively.

The Company’s unrecognized tax benefits were ~~$4.1~~$4.0 million at March 31, ~~2021~~2022 and ~~$4.0~~$3.9 million at December 31, ~~2020,~~2021, inclusive of interest. The Company expects the unrecognized tax benefits to change over the next twelve months if certain tax matters settle with the applicable taxing jurisdiction during this time frame, or, if the applicable statute of limitations lapses. The impact of the amount of such changes to previously recorded uncertain tax positions could range from 0zero to ~~$2.8~~$0.5 million.

The Company and its domestic subsidiaries are subject to ~~audit for~~ U.S. federal income tax as well as tax in multiple state jurisdictions. U.S. federal income tax returns are typically subject to examination by the Internal Revenue Service (“IRS”) and the statute of limitations for federal tax returns is three years. The Company’s filings for the tax years ~~2017~~2018 through 2020 are subject to audit based upon the federal statute of limitations.

State income tax returns are generally subject to examination for a period of three to four years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. As of March 31, ~~2021,~~2022, there ~~were 3~~was 1 income tax ~~audits~~audit in process and the tax years from ~~2016~~2017 to 2020 are subject to audit.

The Company is also subject to corporate income tax atfor its subsidiaries located in the United Kingdom, the Netherlands, India, Ireland, and Puerto Rico. The tax returns for the Company’s subsidiaries located in foreign jurisdictions are subject to examination for periods ranging from one to five years.

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9. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified using a three-level hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Company uses observable inputs where relevant and whenever possible. The three levels of the hierarchy are defined as follows:

Level 1 — Fair value is derived using quoted prices from active markets for identical instruments.

Level 2 — Fair value is derived using quoted prices for similar instruments from active markets or for identical or similar instruments in markets that are not active; or, fair value is based on model-derived valuations in which all significant inputs and significant value drivers are observable from active markets.

Level 3 — Fair value is derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses approximates their fair value because of their short-term nature.

Financial instruments that potentially expose the Company to concentrations of credit risk consisted mainly of cash and accounts receivable. The Company mitigates its exposure by maintaining its cash in financial institutions of high credit standing. The Company’s accounts receivable isare derived primarily from the services it provides, and the related credit risk is dispersed across many clients in various industries with no single client accounting for more than 10% of the Company's net revenue or accounts receivable. No significant credit concentration risk existed at March 31, ~~2021.~~2022.

Long-term Debt — The Company’s long-term debt is recorded at adjusted cost, net of original issue discounts and deferred financing costs. The fair value of the Company’s long-term debt is based on current bid prices or prices for similar instruments from active markets, which approximates carrying value. As such, the Company’s long-term debt was classified as Level ~~1. The carrying value and estimated fair value of long-term debt were $1.03 billion and $1.02 billion, respectively, as of both March 31, 2021 and December 31, 2020.~~2.

Derivative Financial Instruments — The Company’s interest rate ~~swap agreements and interest rate~~ cap agreements are recorded at fair value ~~which were~~and estimated using market-standard valuation models. Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs. Additionally, the fair value of the ~~interest rate swaps and~~ interest rate caps included consideration of credit risk. The Company used a potential future exposure model to estimate this credit valuation adjustment (“CVA”). The inputs to the CVA were largely based on observable market data, with the exception of certain assumptions regarding credit worthiness. As the magnitude of the CVA was not a significant component of the fair value of the interest rate ~~swaps and interest rate~~ caps, it was not considered a significant input. The fair value of the interest rate ~~swaps and interest rate~~ caps are classified as Level 2. As of March 31, ~~2021~~2022 and December 31, 2020, the fair value of the interest rate swap agreements was $3.4 million and $4.8 million, respectively, which were recorded in other current liabilities on the consolidated balance sheet. As of March 31, 2021, ~~and December 31, 2020,~~ the fair value of the interest rate cap agreements was ~~$1.3~~$33.7 million and ~~$0.3~~$8.8 million, respectively, which ~~were~~was recorded in other assets on the consolidated balance sheet.

Debt Securities — The Company’s investments in debt securities, which are classified as available-for-sale, consist of U.S. Treasury and U.S. government agency securities and ~~certificate~~certificates of ~~deposits.~~deposit. These securities are held in escrow by the Company’s wholly-owned captive insurance company and were purchased with restricted cash. As such, these securities are not available to fund the Company’s operations. These securities are recorded at fair value using quoted prices available in active markets and are classified as Level 1. As of March 31, ~~2021,~~2022, the fair value of the available-for-sale debt securities was ~~$26.0~~$28.7 million and was classified based on the instruments’ maturity dates, with ~~$21.6~~$23.4 million included in prepaid expenses and other current assets and ~~$4.4~~$5.3 million in other assets on the consolidated balance sheet. As of December 31, ~~2020,~~2021, the fair value of the available-for-sale debt securities was ~~$27.9~~$29.9 million, with ~~$21.5~~$22.7 million included in prepaid expenses and other current assets and ~~$6.4~~$7.2 million in other assets on the consolidated balance sheet. At March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the amortized cost was ~~$26.0~~$28.9 million and ~~$27.9~~$30.0 million, respectively. The debt securities held at March 31, ~~2021~~2022 had remaining maturities ranging from less than one year to approximately 1.5 years. Unrealized gains and losses, net of tax, on available-for-sale debt securities were immaterial for the three months ended March 31, ~~2021~~2022 and ~~2020. The Company did not realize any gains or losses on its debt securities during the three months ended March 31, 2021 and 2020.~~2021.

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Liabilities for Contingent Consideration — The Company is subject to contingent consideration arrangements in connection with certain business combinations. Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration payable for the related business combination and subsequent changes in fair value recorded to selling, general and administrative expenses on the Company’s consolidated statement of income. The fair value of contingent consideration was generally calculated using customary valuation models based on probability-weighted outcomes of meeting certain future performance targets and forecasted results. The key inputs to the valuations are the projections of future financial results in relation to the businesses and the company-specific discount rates. The Company classified the contingent consideration liabilities as a Level 3 fair value measurement due to the lack of observable inputs used in the model. During the three months ended March 31, 2022, contingent consideration liabilities of $19.3 million were paid related to acquisitions completed in 2019 and 2021. The contingent consideration liabilities outstanding as of March 31, ~~2021~~2022 related to ~~2019 and~~ 2021 acquisitions. See Note 4, Acquisitions, for additional information.

The following table provides a roll forward of the recurring Level 3 fair value ~~measurements~~:measurements:


	Three months ended March 31, ~~2021~~2022

	(In thousands)
Balance at January 1, ~~2021~~2022	$	~~13,721~~
~~Issuance of contingent consideration in connection with acquisitions~~	~~6,518~~27,474

Settlement of contingent consideration liabilities	(19,250)

Changes in fair value	158
Foreign currency translation	~~100~~ (532)
Balance at March 31, ~~2021~~2022	$	~~20,339~~7,850

~~Nonrecurring Fair Value Estimate~~s — During the three months ended March 31, 2020, the Company recognized impairment losses of $5.0 million on fixed assets for certain centers. The impairment losses were included in cost of services on the consolidated statement of income, which have been allocated to the full service center-based child care segment. The estimated fair value of the applicable center long-lived assets was based on the fair value of the asset groups, calculated using a discounted cash flow model, with unobservable inputs. The fair value of the fixed assets was insignificant given the current and expected cash flows for these centers. The Company classified the center long-lived assets as a Level 3 fair value measurement due to the lack of observable inputs used in the model.

10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss), which is included as a component of stockholders’ equity, is comprised of foreign currency translation adjustments and unrealized gains (losses) on cash flow hedges and investments, net of tax.

The changes in accumulated other comprehensive income (loss) by component were as follows:

Three months ended March 31, 2021
Foreign currency translation adjustments
(1) Unrealized gain (loss) on cash flow hedges Unrealized gain (loss) on investments Total
(In thousands)
Balance at January 1, 2021 $ (22,332) $ (4,785) $ 48 $ (27,069)
Other comprehensive income (loss) before reclassifications — net of tax (127) 717 (28) 562
Less: amounts reclassified from accumulated other comprehensive income (loss) — net of tax 387 (1,063) — (676)
Net other comprehensive income (loss) (514) 1,780 (28) 1,238
Balance at March 31, 2021 $ (22,846) $ (3,005) $ 20 $ (25,831)

~~(1)Taxes are not provided for the currency translation adjustments related to the undistributed earnings of foreign subsidiaries that are intended to be indefinitely reinvested.~~


	Three months ended March 31, 2022
	Foreign currency translation adjustments (1)		Unrealized gain (loss) on cash flow hedges		Unrealized gain (loss) on investments		Total

	(In thousands)
Balance at January 1, 2022	$	(38,073)	$	738	$	(24)	$	(37,359)
Other comprehensive income (loss) before reclassifications — net of tax	(17,006)		18,261		(113)		1,142
Less: amounts reclassified from accumulated other comprehensive income (loss) — net of tax	—		(552)		—		(552)
Net other comprehensive income (loss)	(17,006)		18,813		(113)		1,694
Balance at March 31, 2022	$	(55,079)	$	19,551	$	(137)	$	(35,665)

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		Three months ended March 31, 2020									Three months ended March 31, 2021
		Foreign currency translation adjustments (1)		Unrealized gain (loss) on cash flow hedges		Unrealized gain (loss) on investments		Total			Foreign currency translation adjustments (1)		Unrealized gain (loss) on cash flow hedges		Unrealized gain (loss) on investments		Total

		(In thousands)									(In thousands)
Balance at January 1, 2020		$	(47,835)	$	(2,566)	$	70	$	(50,331)
Balance at January 1, 2021										Balance at January 1, 2021	$	(22,332)	$	(4,785)	$	48	$	(27,069)
Other comprehensive income (loss) before reclassifications — net of tax	Other comprehensive income (loss) before reclassifications — net of tax	(39,508)		(4,607)		129		(43,986)		Other comprehensive income (loss) before reclassifications — net of tax	(127)		717		(28)		562
Less: amounts reclassified from accumulated other comprehensive income (loss) — net of tax	Less: amounts reclassified from accumulated other comprehensive income (loss) — net of tax	0		(208)		—		(208)		Less: amounts reclassified from accumulated other comprehensive income (loss) — net of tax	387		(1,063)		—		(676)
Net other comprehensive income (loss)	Net other comprehensive income (loss)	(39,508)		(4,399)		129		(43,778)		Net other comprehensive income (loss)	(514)		1,780		(28)		1,238
Balance at March 31, 2020		$	(87,343)	$	(6,965)	$	199	$	(94,109)
Balance at March 31, 2021										Balance at March 31, 2021	$	(22,846)	$	(3,005)	$	20	$	(25,831)

(1)Taxes are not provided for the currency translation adjustments related to the undistributed earnings of foreign subsidiaries that are intended to be indefinitely reinvested.

11. SEGMENT INFORMATION

The Company’s reportable segments are comprised of (1) full service center-based child care, (2) back-up care, and (3) educational advisory and other services. The full service center-based child care segment includes the traditional center-based early education and child care, ~~and early education,~~ preschool, and elementary education. The Company’s back-up care segment consists of center-based back-up child care, in-home ~~child~~care for children and adult/elder ~~care,~~dependents, school-age camps, virtual tutoring, and self-sourced reimbursed care. The Company’s educational advisory and other services segment consists of tuition assistance and student loan repayment program administration, workforce education, related educational ~~consulting services, and~~advising, college admissions advisory services, and an online marketplace for families and caregivers, which have been ~~aggregated as they do not meet the thresholds for separate disclosure.~~aggregated. The Company and its chief operating decision maker evaluate performance based on ~~revenues~~revenue and income from operations. Intercompany activity is eliminated in the segment results. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; therefore, no segment asset information is produced or included herein.

Revenue and income (loss) from operations by reportable segment were as follows:


		Full service center-based child care		Back-up care		Educational advisory and other services		Total			Full service center-based child care		Back-up care		Educational advisory and other services		Total

		(In thousands)									(In thousands)
Three months ended March 31, 2022										Three months ended March 31, 2022
Revenue										Revenue	$	353,932	$	80,844	$	25,633	$	460,409
Income from operations										Income from operations	7,161		20,458		3,545		31,164

Three months ended March 31, 2021	Three months ended March 31, 2021									Three months ended March 31, 2021
Revenue	Revenue	$	290,319	$	76,355	$	24,166	$	390,840	Revenue	$	290,319	$	76,355	$	24,166	$	390,840
Income (loss) from operations	Income (loss) from operations	(17,967)		27,190		4,485		13,708		Income (loss) from operations	(17,967)		27,190		4,485		13,708

Three months ended March 31, 2020
Revenue		$	411,391	$	74,167	$	20,765	$	506,323
Income from operations (1)		16,747		22,239		4,295		43,281

~~(1)For~~

12. SUBSEQUENT EVENT

On May 3, 2022, the ~~three months ended March 31, 2020, income from operations for~~Company, through wholly-owned subsidiaries, entered into a Share Sale Agreement with Nemo (BC) Cayman, LP to purchase and acquire 100% of the ~~full service center-based~~outstanding shares of Nemo (BC) HoldCo Pty Ltd., an Australian private company, which wholly-owns OAC Group Pty Ltd, and its subsidiaries, including Only About Children Pty Ltd., a child care ~~segment included $5.0~~operator in Australia, for aggregate consideration of AUD$450 million. AUD$300 million (USD$213 million) will be paid upon closing and an additional AUD$150 million (USD$106.5 million) will be paid eighteen months after closing as deferred purchase price. The purchase price is subject to customary adjustments for net debt and net working capital at closing, and is expected to be financed with cash on hand and amounts borrowed under the Company's existing revolving credit facility.

The acquisition is expected to close in the third quarter of ~~impairment costs for long-lived assets due~~calendar 2022, and is subject to certain conditions, including Australian foreign investment regulatory approval and consents of certain third parties. The Company has entered into a foreign exchange forward contract arrangement to mitigate the impact of ~~COVID-19 on the Company’s operations.~~

~~12. CONTINGENCIES~~

~~Litigation~~

The Company is a defendant in certain legal matters in the ordinary course of business. Management believes the resolution of such pending legal matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows, although the Company cannot predict the ultimate outcome of any ~~such actions. The Company is currently subject to a governmental investigation~~foreign currency fluctuations between signing and may be subject to one or more potential health and safety charges in the United Kingdom related to an incident at a Company nursery in July 2019. The Company is unable to estimate a range of loss associated with this unasserted matter at this time, but does not expect that this matter will have a material adverse effect on the Company’s consolidated financial position.closing.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

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 and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition and liquidity, the impact of COVID-19 and its variants on our near and ~~long- term~~long-term operations, ~~our expectations around the timing to open temporarily closed centers, permanent center closures,~~ the continued operation of currently open centers, timing to re-enroll and re-ramp centers as well as certain back-up care services and use types, enrollment recovery, occupancy improvement, our cost management ~~and cost-saving initiatives~~ and capital spending, labor costs and investments in employees, future labor rates and labor market for teachers and staff, impact of government mandates, vaccine adoption and availability, continued performance and contributions from our back-up care segment, ~~use of back-up care solutions,~~ access to and impact of government relief and support programs, ~~including tax deferrals and credits,~~ leases, ~~lease deferrals and timing for payment,~~ ability to respond to changing market conditions, our growth, our strategies, ability to regain and sustain business and strategic growth priorities, demand for services, our value proposition, client relations and partnerships, macroeconomic trends, investments in user experience and service delivery, the impact of accounting principles, pronouncements and policies, the likelihood and timing of the subsequent event acquisition and use of cash and debt, acquisitions and expected synergies, our fair value estimates, impairment losses, goodwill from business combinations, 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, future impact of excess tax benefits, estimates and adjustments, amortization expense, the impact of foreign currency exchange rates, our credit risk, our share repurchase program, the outcome of litigation, legal proceedings and our insurance coverage, debt securities, our interest rate ~~swaps and~~ caps, interest rates and projections, interest expense, the use of derivatives or other market risk sensitive instruments, our indebtedness, borrowings under our senior secured credit ~~facility and revolving credit facility,~~facilities, the need for additional debt or equity financings and our ability to obtain such financing, our sources and uses of cash flow, our ability to fund operations, and make capital expenditures and payments with cash and cash equivalents and borrowings, and our ability to meet financial obligations and comply with covenants of our senior secured credit ~~facility.~~facilities.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, including with respect to the ongoing impacts from the ~~ongoing~~ COVID-19 pandemic, as well as other factors disclosed from time to time in our other filings with the SEC.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as required by law.

Overview

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, ~~2021,~~2022, as compared to the three months ended March 31, ~~2020.~~2021. 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 fiscal year ended December 31, ~~2020.~~2021.

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We are a leading provider of high-quality education and care, including early education and child care, back-up and ~~early education, back-up~~family care solutions, and workforce education services that are designed to help ~~client~~families, employers and their employees ~~better integrate work~~solve the challenges of the modern workforce and ~~family life, as well as grow their careers.~~thrive personally and professionally. We provide services primarily under multi-year contracts with employers who offer early education and child care, back-up care, and educational advisory and other services as part of their employee benefits packages in an effort to support employees across life and career stages and to improve ~~employee~~ recruitment, employee engagement, productivity, retention and career advancement. As of March 31, ~~2021,~~2022, we had more than ~~1,300~~1,350 client relationships with employers across a diverse array of industries, including more than ~~190~~200 Fortune 500 companies and more than 80 of Working Mother magazine’s ~~2020~~2021 “100 Best Companies.”

At March 31, ~~2021,~~2022, we operated ~~1,015~~1,019 early education and child care ~~and early education~~ centers ~~compared to 1,094 centers at March 31, 2020,~~ and had the capacity to serve approximately ~~114,000~~114,500 children and their families in the United States, the United Kingdom, the Netherlands, and India. At March 31, ~~2021, approximately 900,~~2022, 989, or ~~90%~~97%, of our child care centers were open.

Our reportable segments are comprised of (1) full service center-based child care, (2) back-up care, and (3) educational advisory and other services. Full service center-based child care includes the traditional center-based early education and child care, preschool, and elementary education. Back-up care consists of center-based back-up child care, in-home care for children and adult/elder dependents, school-age camps, virtual tutoring, and self-sourced reimbursed care. Educational advisory and other services ~~which~~ includes tuition assistance and student loan repayment program administration, workforce education, related educational advising, ~~and~~ college admissions advisory services, and an online marketplace for families and caregivers.

Since March 2020, our global operations have been significantly impacted by the COVID-19 pandemic and the measures undertaken to prevent its ~~spread, such as periodically reinstated lockdowns~~spread. During the early stages of the pandemic, most of our child care centers were temporarily closed. We responded by quickly adapting to the changing environment and ~~required business~~focusing on health and ~~school closures. We remain focused on~~safety, supporting clients and their essential frontline workers and pivoting to expand back-up care solutions for clients and employees to meet the ~~re-enrollment~~surge in need and demand. While nearly all of our centers ~~and~~have subsequently re-opened, we continue to be impacted by the ~~phased re-opening of the limited number of centers that remain temporarily closed, which we expect will continue throughout 2021. The broad and long-term~~ongoing effects of COVID-19, ~~its duration~~including the resurgence of infections and ~~scope~~variants of the ~~ongoing disruption cannot be predicted~~virus, which have impacted center enrollment, back-up care use and ~~is affected~~the speed of our recovery, and by ~~many interdependent variables~~the challenges of managing precautionary and ~~decisions by government authorities~~preventative measures such as vaccination and masking mandates, virus exposures affecting our ~~client partners, as well as demand, economic~~staff and ~~workforce trends, the adoption~~families who attend our centers, and effectiveness of a vaccine, and developments in the persistence and treatment of COVID-19. We cannot anticipate how long it will take for re-opened centers to reach typical enrollment levels and there is no assurance that centers currently open will continue to operate. Additionally, as we continue to analyze the current environment, we may decide to not re-open certain centers in locations where demand, economic and workforce trends have shifted. We currently expect the effects of COVID-19 to our business to continue to adversely impact our results of operations for the remainder of 2021.disrupted staff availability.

We will continue to monitor and respond to the changing conditions, challenges and disruptions resulting from the COVID-19 pandemic, and the changing needs of clients, families and children, while remaining 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. ~~These challenging times~~We have ~~demonstrated our crisis management abilities, our critical role in the business continuity plans~~executed a number of strategic actions to strengthen our client ~~partners,~~partnerships and our ~~leadership~~employee value proposition to better position us as the service provider and employer of choice in ~~developing~~our industry. As the early education industry continues to be impacted by a challenging labor market, we continue to invest in our employees and ~~implementing~~build on what makes us an employer of choice. We have expanded benefits, increased the child care tuition subsidy, enhanced our mental health and ~~safety protocols,~~wellness resources, and continue to champion for early educators through our Horizons Teacher Degree Program, where our employees can earn an associate or bachelor's degree in early childhood education at no-cost.

It remains difficult to predict the ~~value that~~full impact of the pandemic and eventual recovery, but we remain committed to families, clients and our ~~unique service offering provides to the families and clients we serve.~~employees. We remain confident in our value proposition, business model, the strength of our client partnerships, the strength of our balance sheet and liquidity position, and our ability to continue to respond to changing market conditions. Our ability to fully return to the operating income levels at which we operated prior to COVID-19, and to continue to increase operating income in the future will depend upon our ability to continue to regain and sustain the following characteristics of our business and our strategic growth priorities:

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

• effective pricing strategies, including tuition increases that correlate with expected increases in personnel costs, including wages and benefits, and additional pricing actions to accommodate higher operating costs and the impact of persistent inflation,

• additional growth in expanded service offerings and cross-selling of services to clients,

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

• successful management and improvement of underperforming centers.

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Results of Operations

The following table sets forth statement of income data as a percentage of revenue for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended March 31,									Three Months Ended March 31,
		2021		%		2020		%			2022		%		2021		%

		(In thousands, except percentages)									(In thousands, except percentages)
Revenue	Revenue	$	390,840	100.0	%	$	506,323	100.0	%	Revenue	$	460,409	100.0	%	$	390,840	100.0	%
Cost of services	Cost of services	309,482		79.2	%	397,464		78.5	%	Cost of services	350,350		76.1	%	309,482		79.2	%
Gross profit	Gross profit	81,358		20.8	%	108,859		21.5	%	Gross profit	110,059		23.9	%	81,358		20.8	%
Selling, general and administrative expenses	Selling, general and administrative expenses	60,110		15.4	%	57,369		11.4	%	Selling, general and administrative expenses	71,746		15.6	%	60,110		15.4	%
Amortization of intangible assets	Amortization of intangible assets	7,540		1.9	%	8,209		1.6	%	Amortization of intangible assets	7,149		1.5	%	7,540		1.9	%
Income from operations	Income from operations	13,708		3.5	%	43,281		8.5	%	Income from operations	31,164		6.8	%	13,708		3.5	%
Interest expense — net	Interest expense — net	(9,016)		(2.3)	%	(10,206)		(2.0)	%	Interest expense — net	(7,046)		(1.6)	%	(9,016)		(2.3)	%
Income before income tax	Income before income tax	4,692		1.2	%	33,075		6.5	%	Income before income tax	24,118		5.2	%	4,692		1.2	%
Income tax benefit (expense)	Income tax benefit (expense)	2,440		0.6	%	(2,343)		(0.4)	%	Income tax benefit (expense)	(4,712)		(1.0)	%	2,440		0.6	%
Net income	Net income	$	7,132	1.8	%	$	30,732	6.1	%	Net income	$	19,406	4.2	%	$	7,132	1.8	%

Adjusted EBITDA (1)	Adjusted EBITDA (1)	$	46,296	11.8	%	$	81,458	16.1	%	Adjusted EBITDA (1)	$	62,836	13.6	%	$	46,296	11.8	%
Adjusted income from operations (1)	Adjusted income from operations (1)	$	13,708	3.5	%	$	48,954	9.7	%	Adjusted income from operations (1)	$	31,164	6.8	%	$	13,708	3.5	%
Adjusted net income (1)	Adjusted net income (1)	$	13,855	3.5	%	$	43,646	8.6	%	Adjusted net income (1)	$	27,723	6.0	%	$	13,855	3.5	%

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

Three Months Ended March 31, ~~2021~~2022 Compared to the Three Months Ended March 31, ~~2020~~2021

Revenue. Revenue ~~decreased~~increased by ~~$115.5~~$69.6 million, or ~~23%~~18%, to ~~$390.8~~$460.4 million for the three months ended March 31, ~~2021~~2022 from ~~$506.3~~$390.8 million for the same period in ~~2020.~~2021. The following table summarizes the revenue and percentage of total revenue for each of our segments for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended March 31,													Three Months Ended March 31,
		2021				2020				Change 2021 vs 2020					2022				2021				Change 2022 vs 2021

		(In thousands, except percentages)													(In thousands, except percentages)
Full-service center-based child care	Full-service center-based child care	$	290,319	74.3	%	$	411,391	81.3	%	$	(121,072)	(29.4)	%	Full-service center-based child care	$	353,932	76.8	%	$	290,319	74.3	%	$	63,613	21.9	%
Tuition	Tuition	250,252		86.2	%	372,773		90.6	%	(122,521)		(32.9)	%	Tuition	320,221		90.5	%	250,252		86.2	%	69,969		28.0	%
Management fees and operating subsidies	Management fees and operating subsidies	40,067		13.8	%	38,618		9.4	%	1,449		3.8	%	Management fees and operating subsidies	33,711		9.5	%	40,067		13.8	%	(6,356)		(15.9)	%
Back-up care	Back-up care	76,355		19.5	%	74,167		14.6	%	2,188		3.0	%	Back-up care	80,844		17.6	%	76,355		19.5	%	4,489		5.9	%
Educational advisory and other services	Educational advisory and other services	24,166		6.2	%	20,765		4.1	%	3,401		16.4	%	Educational advisory and other services	25,633		5.6	%	24,166		6.2	%	1,467		6.1	%
Total revenue	Total revenue	$	390,840	100.0	%	$	506,323	100.0	%	$	(115,483)	(22.8)	%	Total revenue	$	460,409	100.0	%	$	390,840	100.0	%	$	69,569	17.8	%

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Revenue generated by the full service center-based child care segment in the three months ended March 31, ~~2021 decreased~~2022 increased by ~~$121.1~~$63.6 million, or ~~29%~~22%, when compared to the same period in ~~2020. The decrease~~2021. Revenue growth in this segment was attributable to ~~the continued impact of the COVID-19 pandemic on our operations, the associated reduction in~~ enrollment increases in our open child care centers and from the ~~continued temporary closure~~re-opening of ~~certain child care~~our temporarily closed centers. Tuition revenue ~~decreased~~increased by ~~$122.5~~$70.0 million, or ~~32.9%~~28%, when compared to the prior year, on a ~~decrease~~27% increase in ~~enrollment of 35%. As the economy continues to recover,~~enrollment. While enrollment in our ~~child care~~ centers ~~had modest improvements during the quarter compared~~continues to ~~the previous quarter. However,~~improve, our centers continue to operate below pre-COVID-19 enrollment levels ~~during this re-ramping period.~~as the ongoing disruption of the pandemic, infection resurgences, and labor market challenges have slowed the recovery. We expect ~~enrollment recovery~~continued occupancy improvement throughout 2022. Additionally, during the three months ended March 31, 2022, amounts received from government programs of $2.0 million related to ~~continue throughout 2021. Tuition revenue decreases~~tuition support and were ~~partially offset by the effect of higher~~recorded to revenue. Lower foreign currency exchange rates for our United Kingdom and Netherlands operations impacted our revenue growth, which ~~increased 2021~~decreased 2022 tuition revenue by approximately 2%1%, or ~~$7.4~~$4.1 million. Management fees and operating subsidies from employer sponsors ~~increased $1.4~~decreased $6.4 million, or ~~3.8%~~16%, primarily due to ~~additional~~funding received from government support programs that reduced certain center operating ~~subsidies~~costs, which impacted the related operating subsidies. During the three months ended March 31, 2022 and 2021, funding received tofrom government support ~~center operations in connection with~~programs of $9.5 million and $2.9 million, respectively, reduced the ~~decrease in tuition revenue.~~

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operating subsidy revenue due from employers.

Revenue generated by back-up care services in the three months ended March 31, ~~2021~~2022 increased by ~~$2.2~~$4.5 million, or 3%6%, when compared to the same period in ~~2020.~~2021. Revenue growth in ~~this~~the back-up care segment was primarily attributable to expanded sales to new clients and increased utilization ~~from existing clients, partially offset by decreases in utilization~~ of traditional in-center and in-home ~~use. While~~back-up care from new and existing clients as these continue to ramp. We expect traditional in-center and in-home back-up care use ~~continues to recover, usage remains below pre-COVID-19 levels and we expect it~~ to continue ~~ramping~~to improve throughout ~~2021.~~2022.

Revenue generated by educational advisory and other services in the three months ended March 31, ~~2021~~2022 increased by ~~$3.4~~$1.5 million, or ~~16%~~6%, when compared to the same period in the prior year. Revenue growth in this segment iswas primarily attributable to contributions from sales to new clients and increased utilization from existing clients. ~~An acquisition completed in 2020 also contributed $2.0 million to the growth of this segment in 2021.~~

Cost of Services. Cost of services ~~decreased by $88.0~~increased $40.9 million, or ~~22%~~13%, to ~~$309.5~~$350.4 million for the three months ended March 31, ~~2021~~2022 from ~~$397.5~~$309.5 million for the same period in ~~2020.~~2021.

Cost of services in the full service center-based child care segment ~~decreased $85.3~~increased by $32.9 million, or ~~25%~~13%, to ~~$261.2~~$294.1 million in the three months ended March 31, ~~2021~~2022 when compared to the same period in ~~2020.~~2021. The ~~decrease~~increase in cost of services iswas primarily associated with ~~reductions~~the enrollment increase in our centers and the re-opening of ~~20% in personnel~~our temporarily closed centers. Personnel costs, which generally represent 70% of the costs for this segment, ~~and reductions of 26% in program supplies, materials, and facility costs, which generally represent the remaining 30% of costs for this segment,~~increased 17% primarily in connection with the ~~reduced~~ enrollment growth at our centers. Funding received from government support programs reduced ~~certain payroll and other~~center operating expenses by $25.3 million in the first quarter of 2022, compared to $9.6 ~~million. These decreases were partially offset~~million in government funding received in the first quarter of 2021. As noted above, a portion of the funding received from government support programs reduced the operating subsidy revenue due from employers for the related child care centers by ~~reduced efficiencies associated with lower enrollment~~$9.5 million and ~~COVID-19 protocols.~~$2.9 million in the three months ended March 31, 2022 and 2021, respectively.

Cost of services in the back-up care segment ~~decreased~~increased by ~~$3.9~~$8.3 million, or ~~10%~~23%, to ~~$36.2~~$44.5 million in the three months ended March 31, ~~2021,~~2022, when compared to the prior year. The ~~decrease~~increase in cost of services is ~~primarily due~~associated with the effects of a change in the revenue mix and the return to ~~reductions~~higher levels of traditional in-center and in-home back-up care use in ~~personnel costs and~~2022 compared to more significant self-sourced reimbursed care in the prior year period. The increase in cost of services included increased care provider fees ~~which represented approximately 70% of total costs of services for this segment, as traditional~~generated by the increase in utilization levels ~~were lower than~~of traditional in-center and in-home back-up care over the prior ~~year. This reduction was partially offset by~~year, and continued investment in personnel, marketing and technology ~~spending~~ to support our customer user experience and service delivery.

Cost of services in the educational advisory and other services segment ~~increased~~decreased by ~~$1.2~~$0.3 million, or ~~11%~~3%, to ~~$12.1~~$11.8 million in the three months ended March 31, ~~2021~~2022 when compared to the prior year, ~~which is broadly consistent~~due to cost efficiencies associated with the ~~revenue growth. The increase is primarily due to personnel costs related to delivering services to the expanding customer base.~~increased revenue.

Gross Profit. Gross profit ~~decreased~~increased by ~~$27.5~~$28.7 million, or ~~25%~~35%, to ~~$81.4~~$110.1 million for the three months ended March 31, ~~2021~~2022 from ~~$108.9~~$81.4 million for the same period in ~~2020.~~2021. Gross profit margin was ~~21%~~24% of revenue for the three months ended March 31, ~~2021, a decrease~~2022 an increase of approximately ~~1% from~~3% compared to the three months ended March 31, ~~2020.~~2021. The ~~decrease is~~increase was primarily due to ~~reduced~~improved margins in the full service center-based child care segment from ~~reduced~~ enrollment increases at open ~~centers, as well as the continued temporary closure of certain~~ child care centers and from the re-opening of temporarily closed centers, partially offset by ~~increases~~reduced contributions from our back-up care services as a result of the continued shift in ~~gross profit from expanded~~the service delivery mix back towards pre-COVID-19 levels, with increasing utilization of traditional in-home and center-based back-up care and ~~educational advisory and other services, and funding received from government support programs.~~a decrease in self-sourced reimbursed care.

Selling, General and Administrative Expenses (“SGA”). SGA increased by ~~$2.7~~$11.6 million, or 5%19%, to ~~$60.1~~$71.7 million for the three months ended March 31, ~~2021~~2022 from ~~$57.4~~$60.1 million for the same period in ~~2020,~~2021, in order to support the business throughout the pandemic and as it re-ramps. SGA was ~~15%~~15.6% of revenue for the three months ended March 31, ~~2021, compared to 11% for~~2022, generally consistent with the same period in ~~2020 due to the lower revenue base.~~2021.

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Amortization of Intangible Assets. Amortization expense on intangible assets was $7.1 million for the three months ended March 31, 2022, a decrease from $7.5 million for the three months ended March 31, 2021, ~~a decrease from $8.2 million for the three months ended March 31, 2020,~~ due to the use of the accelerated method of amortization for certain intangible assets and decreases from ~~certain~~ intangible assets becoming fully amortized during the period, partially offset by increases from the acquisitions completed in ~~2020 and~~ 2021.

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Income from Operations. Income from operations ~~decreased~~increased by ~~$29.6~~$17.5 million, or ~~68%~~127%, to ~~$13.7~~$31.2 million for the three months ended March 31, ~~2021~~2022 when compared to the prior year. The following table summarizes income (loss) from operations and percentage of revenue for each of our segments for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended March 31,													Three Months Ended March 31,
		2021				2020				Change 2021 vs 2020					2022				2021				Change 2022 vs 2021

		(In thousands, except percentages)													(In thousands, except percentages)
Full-service center-based child care	Full-service center-based child care	$	(17,967)	(6.2)	%	$	16,747	4.1	%	$	(34,714)	(207.3)	%	Full-service center-based child care	$	7,161	2.0	%	$	(17,967)	(6.2)	%	$	25,128	139.9	%
Back-up care	Back-up care	27,190		35.6	%	22,239		30.0	%	4,951		22.3	%	Back-up care	20,458		25.3	%	27,190		35.6	%	(6,732)		(24.8)	%
Educational advisory and other services	Educational advisory and other services	4,485		18.6	%	4,295		20.7	%	190		4.4	%	Educational advisory and other services	3,545		13.8	%	4,485		18.6	%	(940)		(21.0)	%
Income from operations	Income from operations	$	13,708	3.5	%	$	43,281	8.5	%	$	(29,573)	(68.3)	%	Income from operations	$	31,164	6.8	%	$	13,708	3.5	%	$	17,456	127.3	%

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

•Income from operations for the full service center-based child care segment ~~decreased $34.7~~increased $25.1 million, or ~~207%~~140%, in the three months ended March 31, ~~2021~~2022 when compared to the same period in ~~2020~~2021 primarily due to ~~reduced~~increases in tuition revenue from ~~reduced~~ enrollment growth in our open centers and the re-opening of temporarily closed centers, as well as ~~continued temporary center closures, partially offset by reduced operating expenses and~~net contributions of $17.8 million from government support programs that primarily reduced certain ~~payroll and~~ operating ~~expenses.~~expenses during the quarter.

•Income from operations for the back-up care segment ~~increased $5.0~~decreased $6.7 million, or ~~22%~~25%, in the three months ended March 31, ~~2021~~2022 when compared to the same period in ~~2020 due~~2021, as the service delivery mix continues to ~~the expanding revenue base from increased sales and utilization of our back-up care services as clients and families pursued additional supports, and reduced care provider fees associated~~shift back towards pre-COVID-19 levels, with ~~lower~~increasing utilization of traditional in-home and center-based back-up care ~~options~~and a decrease in ~~relation~~self-sourced reimbursed care compared to the prior ~~year, partially offset by investments in technology to support our customer user experience and service delivery.~~year.

•Income from operations for the educational advisory and other services segment ~~increased $0.2~~decreased $0.9 million, or 4%21%, in the three months ended March 31, ~~2021~~2022 when compared to the same period in ~~2020~~2021 due to ~~contributions from~~investments in personnel, marketing and technology to support the ~~expanding revenue base.~~growth of the segment.

Net Interest Expense. Net interest expense decreased to ~~$9.0~~$7.0 million for the three months ended March 31, ~~2021~~2022 from ~~$10.2~~$9.0 million for the same period in ~~2020,~~2021 due to decreases in the outstanding debt as a result of the November 2021 debt refinance as well as a decrease in the interest rates applicable to our debt. ~~Including~~The weighted average interest rate for the term loans and revolving credit facility was 2.34% for three months ended March 31, 2022 and 3.06% for the three months ended March 31, 2021, inclusive of the effects of the interest rate swap arrangements ~~the weighted average interest rates for the term loan and revolving credit facility were 3.1% and 3.5% for the three months ended March~~prior to their maturity on October 31, ~~2021 and 2020, respectively.~~2021. Based on our current interest rate projections, we estimate that our overall weighted average interest rate will approximate ~~3.0%~~3.2% for the remainder of ~~2021.~~2022.

Income Tax Expense (Benefit). We recorded income tax expense of $4.7 million during the three months ended March 31, 2022, at an effective income tax rate of 20%, compared to an income tax benefit of $2.4 million during the three months ended March 31, 2021, at an effective income tax rate of (52)%~~, compared to income tax expense of $2.3 million during the three months ended March 31, 2020, at an effective income tax rate of 7%~~. The difference between the effective income tax rate as compared to the statutory income tax rate iswas primarily due to the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted stock, which had a more significant impact to the effective tax rate for ~~the three months ended March 31,~~ 2021 due to the lower income before ~~tax.~~income tax and higher excess tax benefits. 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, valuation allowances, jurisdictional income tax rate changes, as well as discrete items such as the settlement of foreign, federal and state tax matters and the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted stock. During the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, the excess tax benefits reduced income tax expense by ~~$3.9~~$2.0 million and ~~$6.9~~$3.9 million, respectively. The effective income tax rate prior to the inclusion of the excess tax benefits from stock-based compensation and other discrete items was approximately 27% and 28% for the three months ended March 31, 2022 and 2021, ~~and 2020.~~respectively.

Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA and adjusted income from operations ~~decreased $35.2~~increased $16.5 million, or ~~43%~~36%, and ~~$35.2~~$17.5 million, or ~~72%~~127%, respectively, for the three months ended March 31, ~~2021~~2022 over the comparable period in ~~2020~~2021 primarily as a result of the ~~decrease~~increase in gross profit in the full service center-based child care segment, partially offset by ~~growth~~reduced contributions in the back-up care segment.

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Adjusted Net Income. Adjusted net income ~~decreased $29.8~~increased $13.9 million, or ~~68%~~100%, for the three months ended March 31, ~~2021~~2022 when compared to the same period in ~~2020,~~2021, primarily due to the ~~decrease~~increase in income from operations, partially offset by a higher effective tax rate.

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Non-GAAP Financial Measures and Reconciliation

In our quarterly and annual reports, earnings press releases and conference calls, we discuss key financial measures that are not calculated in accordance with GAAP to supplement our consolidated financial statements presented on a GAAP basis. These non-GAAP financial measures of adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are reconciled from their respective measures determined under GAAP as follows:


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021

		(In thousands, except share data)						(In thousands, except share data)
Net income	Net income	$	7,132	$	30,732		Net income	$	19,406	$	7,132
Interest expense — net	Interest expense — net	9,016		10,206			Interest expense — net	7,046		9,016
Income tax expense (benefit)	Income tax expense (benefit)	(2,440)		2,343			Income tax expense (benefit)	4,712		(2,440)
Depreciation	Depreciation	19,742		20,012			Depreciation	18,427		19,742
Amortization of intangible assets (a)	Amortization of intangible assets (a)	7,540		8,209			Amortization of intangible assets (a)	7,149		7,540
EBITDA	EBITDA	40,990		71,502			EBITDA	56,740		40,990
Additional adjustments:	Additional adjustments:						Additional adjustments:
COVID-19 related costs (b)		—		4,970

Stock-based compensation expense ~~(c)~~(b)	Stock-based compensation expense ~~(c)~~(b)	5,306		4,283			Stock-based compensation expense ~~(c)~~(b)	6,096		5,306
Other costs (d)		—		703
Other costs							Other costs	—		—

Total adjustments	Total adjustments	5,306		9,956			Total adjustments	6,096		5,306
Adjusted EBITDA	Adjusted EBITDA	$	46,296	$	81,458		Adjusted EBITDA	$	62,836	$	46,296

Income from operations	Income from operations	$	13,708	$	43,281		Income from operations	$	31,164	$	13,708
COVID-19 related costs (b)		—		4,970
Other costs (d)		—		703

Other costs							Other costs	—		—
Adjusted income from operations	Adjusted income from operations	$	13,708	$	48,954		Adjusted income from operations	$	31,164	$	13,708

Net income	Net income	$	7,132	$	30,732		Net income	$	19,406	$	7,132
Income tax expense (benefit)	Income tax expense (benefit)	(2,440)		2,343			Income tax expense (benefit)	4,712		(2,440)
Income before income tax	Income before income tax	4,692		33,075			Income before income tax	24,118		4,692
Amortization of intangible assets (a)	Amortization of intangible assets (a)	7,540		8,209			Amortization of intangible assets (a)	7,149		7,540
COVID-19 related costs (b)		—		4,970

Stock-based compensation expense ~~(c)~~(b)	Stock-based compensation expense ~~(c)~~(b)	5,306		4,283			Stock-based compensation expense ~~(c)~~(b)	6,096		5,306
Other costs (d)		—		703
Other costs							Other costs	—		—
Adjusted income before income tax	Adjusted income before income tax	17,538		51,240			Adjusted income before income tax	37,363		17,538
Adjusted income tax expense ~~(e)~~(c)	Adjusted income tax expense ~~(e)~~(c)	(3,683)		(7,594)			Adjusted income tax expense ~~(e)~~(c)	(9,640)		(3,683)
Adjusted net income	Adjusted net income	$	13,855	$	43,646		Adjusted net income	$	27,723	$	13,855

Weighted average common shares outstanding — diluted	Weighted average common shares outstanding — diluted	61,325,973		58,878,784			Weighted average common shares outstanding — diluted	59,415,345		61,325,973
Diluted adjusted earnings per common share	Diluted adjusted earnings per common share	$	0.23	$	0.74		Diluted adjusted earnings per common share	$	0.47	$	0.23

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

(b)COVID-19 related costs in 2020 represent impairment costs for long-lived assets incurred as a result of center closures and decreases in the fair values of certain centers due to the impact of COVID-19 on our operations.

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

~~(d)~~Other costs in 2020 relate to occupancy costs incurred for our new corporate headquarters during the construction period, which represent duplicative office costs while we also continued to carry the costs for our previous corporate headquarters.

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~~(e)~~(c)Represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately ~~21%~~26% and ~~15%~~21% for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The tax rate for ~~2021~~2022 represents a tax rate of approximately 27% applied to the expected adjusted income before income tax, less the estimated effect of excess tax benefits related to equity transactions. However, the jurisdictional mix of the expected adjusted income before income tax for the full year, and the timing and volume of the tax benefits associated with ~~such~~ future equity activity will affect these estimates and the estimated effective tax rate for the year.

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Adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share (collectively referred to as the “non-GAAP financial measures”) are not presentations made in accordance with GAAP, and the use of the terms adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. 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, stock-based compensation expense, ~~impairment costs, other costs incurred due to the impact of COVID-19 including center closing costs,~~ and ~~duplicative corporate office~~at times, non-recurring 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. Adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are not measurements of our financial performance under GAAP and should not be considered in isolation or as an alternative to income before taxes, net income, diluted earnings per common share, net cash provided by (used in) operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Consequently, our non-GAAP financial measures should be considered together with our consolidated financial statements, which are prepared in accordance with GAAP and included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We understand that although adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are frequently used by securities analysts, lenders and others in their evaluation of companies, they have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•adjusted EBITDA, adjusted income from operations and adjusted net income do not fully reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;

•adjusted EBITDA, adjusted income from operations and adjusted net income do not reflect changes in, or cash requirements for, our working capital needs;

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

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

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

Liquidity and Capital Resources

Our primary cash requirements are for the ongoing operations of our existing early education and child care centers, back-up care, educational advisory and other services, the addition of new centers through development or acquisitions, and debt financing obligations. Our primary sources of liquidity are our existing cash, cash flows from operations, and borrowings available under our revolving credit facility. We had ~~$442.1~~$257.2 million in cash ($~~447.8~~261.8 million including restricted cash) at March 31, ~~2021,~~2022, of which ~~$44.5~~$21.3 million was held in foreign jurisdictions, compared to ~~$384.3~~$261.0 million in cash ($~~388.5~~265.3 million including restricted cash) at December 31, ~~2020,~~2021, of which ~~$43.6~~$25.8 million was held in foreign jurisdictions. Operations outside of North America accounted for ~~26%~~25% and ~~23%~~26% of our consolidated revenue in the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The net impact on our liquidity from changes in foreign currency exchange rates was not material for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, and 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 ~~2021.~~

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On April 21, 2020, we completed the issuance and sale of 2,138,580 shares of common stock to Durable Capital Master Fund LP at a price of $116.90 per share. We raised net proceeds from the offering of $249.8 million, which further strengthened our liquidity and financial position and increased our cash and cash equivalents.2022.

Our revolving credit facility is part of our senior secured credit facilities, which consist of a secured term ~~loan facility~~loans and a $400 million revolving credit facility. There were no borrowings outstanding on our revolving credit facility at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021.

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We had a working capital deficit of ~~$123.4~~$77.5 million and ~~$93.4~~$81.9 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Our working capital deficit has primarily arisen from using cash to make long-term investments in fixed assets and acquisitions, and from share repurchases. We anticipate that our cash flows from operating activities will continue to be impacted while our re-opened centers ramp enrollment and while certain centers remain temporarily closed. During this re-enrollment and re-opening phase, cash flows from operating activities will be supplemented with our existing cash, as well as borrowings available under our revolving credit facility, as needed.center performance continues to ramp. As we focus on the ~~re-enrollment~~enrollment and ramping of ~~re-opened centers, as well as re-opening our remaining temporarily closed~~ centers, we ~~will~~ continue to ~~manage our discretionary operating and capital spending and~~ prioritize investments that support current operations and strategic opportunities, as well as the principal and interest payments on our debt.

~~We have~~During the three months ended March 31, 2022 and 2021, we participated in ~~certain~~ government support programs that were enacted in response to the economic impact of the COVID-19 pandemic, including certain tax deferrals, ~~and~~ tax credits ~~allowed pursuant to the CARES Act~~ and ~~the CAA~~federal block grant funding in the United States, as well as ~~certain tax deferrals, tax credits, and~~ employee wage support in the United ~~Kingdom, and may continue to do so in the future.~~Kingdom. During the three months ended March 31, 2022 and 2021, $25.3 million and $9.6 million, respectively, was recorded as a reduction to cost of services in relation to these ~~benefits.~~benefits, of which $9.5 million and $2.9 million, respectively, reduced the operating subsidies paid by employers for the related child care centers. Additionally, during the three months ended March 31, 2022, amounts received for tuition support of $2.0 million was recorded to revenue. As of March 31, ~~2021~~2022 and December 31, ~~2020, $13.1~~2021, $4.0 million and ~~$8.4~~$3.3 million, respectively, was recorded in prepaid expenses and other current assets on the consolidated balance sheet for amounts ~~receivable~~due from government support programs. ~~Additionally, the Company had payroll tax deferrals totaling $20.4~~As of March 31, 2022 and December 31, 2021, $2.6 million and $3.9 million was recorded to other current liabilities related to government support received related to future periods, and as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, payroll tax deferrals of ~~which $10.2~~$7.0 million ~~was included~~were recorded in accounts payable and accrued expenses ~~and $10.2 million was included in other long-term liabilities. There is no assurance that these government support programs will continue in~~on the ~~future at current levels, or at all.~~

In response to the broad effects of COVID-19, we have re-negotiated certain payment terms with lessors to mitigate the impact on our financial position and operations. As of March 31, 2021 and December 31, 2020, we had $3.5 million and $7.7 million, respectively, in lease payment deferrals of which the majority are payable over the next year.consolidated balance sheet.

The board of directors authorized a share repurchase program of up to ~~$300~~$400 million of our outstanding common stock, effective December 16, 2021. The share repurchase program has no expiration date and replaced the prior June ~~12, 2018.~~2018 authorization, of which $0.2 million remained available thereunder. During the three months ended March 31, ~~2021 there were no share repurchases~~2022, we repurchased 0.3 million shares for $39.7 million, and ~~$194.9~~at March 31, 2022, $340.9 million remained available under the repurchase program. During the three months ended March 31, ~~2020, we repurchased 0.2 million shares for $32.2 million.~~2021, there were no share repurchases. All repurchased shares have been retired.

We believe that funds provided by operations, our existing cash balances, and borrowings available under our revolving credit facility will be adequate to fund all obligations and liquidity requirements for at least the next twelve months. However, ~~prolonged disruptions~~if we were to ~~our operations, including as a result of periodically reinstated lockdowns, required school, child care and business closures and government mandates in response to~~experience continued or renewed disruption from the COVID-19 pandemic ~~may~~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 ~~may~~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.


Cash Flows	Cash Flows	Three Months Ended March 31,				Cash Flows	Three Months Ended March 31,
		2021		2020			2022		2021

		(In thousands)					(In thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	68,295	$	64,083	Net cash provided by operating activities	$	58,558	$	68,295
Net cash used in investing activities	Net cash used in investing activities	$	(22,284)	$	(12,964)	Net cash used in investing activities	$	(9,353)	$	(22,284)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	$	13,899	$	(25,703)	Net cash provided by (used in) financing activities	$	(52,129)	$	13,899
Cash, cash equivalents and restricted cash — beginning of period	Cash, cash equivalents and restricted cash — beginning of period	$	388,465	$	31,192	Cash, cash equivalents and restricted cash — beginning of period	$	265,281	$	388,465
Cash, cash equivalents and restricted cash — end of period	Cash, cash equivalents and restricted cash — end of period	$	447,836	$	55,405	Cash, cash equivalents and restricted cash — end of period	$	261,752	$	447,836

Cash Provided by Operating Activities

Cash provided by operating activities was ~~$68.3~~$58.6 million for the three months ended March 31, ~~2021,~~2022, compared to ~~$64.1~~$68.3 million for the same period in ~~2020.~~2021. The increase in net income of $12.3 million was offset by lower cash provided by ~~operating activities primarily resulted from changes in~~ working capital arising from the timing of billings and payments when compared to the prior year, ~~including improved timing~~and the payment of ~~collections, and increases associated with growth~~$5.4 million in contingent consideration during the back-up care segment and tuition fees collected in advance at full service centers as children re-enroll at our centers. The increase in cash provided by operating activities was partially offset by the $23.6 million decrease in net income from the prior year.quarter.

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Cash Used in Investing Activities

Cash used in investing activities was ~~$22.3~~$9.4 million for the three months ended March 31, ~~2021,~~2022 compared to ~~$13.0~~$22.3 million for the same period in ~~2020, and was related to fixed asset additions, acquisitions, and other investments.~~2021. The ~~increase~~decrease in cash used in investing activities was primarily related to acquisitions, as we ~~used $9.0 million for the acquisition of two centers as well as a camp and back-up care provider, and to a lesser extent, settlements of prior year~~did not complete any acquisitions in the three months ended March 31, ~~2021,~~2022, compared to ~~$3.5~~$9.0 million ~~used~~invested in two acquisitions during the same period in 2021. Net investments in fixed assets were also $6.3 million lower in the three months ended March 31, 2022 compared to ~~acquire one center~~the same period in the prior year. During the three months ended March 31, ~~2021,~~2022, we invested ~~$17.9~~$11.6 million in fixed asset purchases for new child care centers, and maintenance and refurbishments in our existing centers, compared to a $17.9 million investment in the prior year, which was ~~consistent with the prior year. Proceeds~~partially offset by proceeds from the sale of fixed assets in 2021 of $3.9 ~~million were lower~~million. In addition to the decrease in the uses of cash in the three months ended March 31, ~~2021~~2022, we received net proceeds of $2.4 million from investments in debt securities and other investments, compared to ~~$4.5~~net proceeds received of $0.7 million in the prior year. In addition, proceeds generated from the maturity of debt securities held by our wholly-owned captive insurance company and sales of investments were $0.7 million and $3.2 million for the three months ended March 31, 2021 and 2020, respectively, net of purchases.

Cash Provided by (Used in) Financing Activities

Cash ~~provided by~~used in financing activities was ~~$13.9~~$52.1 million for the three months ended March 31, ~~2021~~2022 compared to cash ~~used~~provided by financing activities of ~~$25.7~~$13.9 million for the same period in ~~2020.~~2021. The ~~increase~~change in ~~cash provided by~~ financing activities was primarily related to ~~an increase~~cash used in 2022 for share repurchases of $39.9 million and payments of contingent consideration of $13.9 million, neither of which occurred during the same 2021 period. Additionally, proceeds from the exercise of stock options and the issuance and sale of restricted stock ~~which were $22.4~~decreased $13.6 million ~~in the three months ended March 31, 2021~~when compared to ~~$16.0 million in~~ the ~~prior year, and having no share repurchases and payments of contingent consideration in the three months ended March 31, 2021 compared to $32.7 million and $1.1 million, respectively,~~same period in the prior year.

Debt

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

Long term debt obligations were as follows:


	March 31, 2022		December 31, 2021
	(In thousands)
Term loan B	$	598,500	$	600,000
Term loan A	397,500		400,000
Deferred financing costs and original issue discount	(7,308)		(7,604)
Total debt	988,692		992,396
Less current maturities	(16,000)		(16,000)
Long-term debt	$	972,692	$	976,396

The seven year term loan B matures on November ~~7, 2023~~23, 2028 and requires quarterly principal payments equal to 1% per annum of ~~$2.7 million,~~the original aggregate principal amount of the term loan B, with the remaining principal balance due at maturity. The five year term loan A matures on November ~~7, 2023.~~

~~Outstanding~~23, 2026 and requires quarterly principal payments equal to 2.5% per annum of the original aggregate principal amount of the term loan ~~borrowings were as follows:~~

In April and May 2020, we amended our existing senior credit facilities to, among other things, increase the borrowing capacity of our revolving credit facility from $225 million to $400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the termsA in each of the ~~applicable covenants.~~ first three years, 5.0% in the fourth year, and 7.5% in the fifth year. The remaining principal balance is due at maturity.

The revolving credit facility matures on ~~July 31, 2022.~~May 26, 2026. There were no borrowings outstanding on the revolving credit facility at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, with ~~the full line~~$400 million available for ~~borrowings.~~borrowing.

Borrowings under the credit ~~agreement~~facilities are subject to variable interest. We mitigate our interest rate exposure with ~~variable-to-fixed~~ interest rate ~~swap~~cap agreements. In December 2021, the Company entered into interest rate cap agreements with ~~an underlying fixed~~a total notional value of ~~$500~~$900 million designated and accounted for as cash flow ~~hedges from inception, that are scheduled to mature~~hedges. Interest rate cap agreements for $600 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, ~~2021. The weighted average~~2025, provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 2.5%. Interest rate cap agreements for $300 million, which have a forward starting effective date of October 31, 2023 and expire on October 31, 2026, provide the ~~term loan was 3.06% and 3.53% for the three months ended March 31, 2021 and 2020, respectively, including the impact of the~~Company with interest rate ~~swap agreements. We have~~protection in the event the one-month LIBOR rate increases above 3.0%.

In June 2020, the Company entered into interest rate cap agreements with a total notional value of $800 ~~million,~~million. These interest rate cap agreements, designated and accounted for as cash flow hedges, ~~from inception, that~~ provide us with interest rate protection in the event the one-month LIBOR rate increases above 1%. Interest rate cap agreements for $300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $500 million notional amount have a forward starting effective date of October 29, 2021, ~~which coincides with the maturity of our existing interest rate swap agreements,~~ and expire on October 31, 2023.

The weighted average interest rate for the term loans was 2.34% and 3.06% for the three months ended March 31, 2022 and 2021, respectively, including the impact of the interest rate swap agreements prior to their maturity on October 31, 2021.

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The term loan A and the revolving credit facility ~~requires~~require Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a ~~quarterly maintenance based financial covenant.~~maximum first lien net leverage ratio. A breach of this covenant is subject to certain equity cure rights. The credit agreement governing the senior secured credit facilities contains certain customary affirmative covenants and events of default. We were in compliance with our financial covenant at March 31, ~~2021.~~2022. Refer to Note 6, Credit Arrangements and Debt Obligations, in our condensed consolidated financial statements for additional information on our debt and credit arrangements, and covenant requirements.

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~~Off-Balance Sheet Arrangements~~

~~As of March 31, 2021, we had no off-balance sheet arrangements.~~

Critical Accounting Policies

For a discussion of our “Critical Accounting Policies,” refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. There have been no material changes to our critical accounting policies since December 31, ~~2020.~~2021.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates and fluctuations in foreign currency exchange rates. ~~Other than the broad effects of the COVID-19 pandemic and its negative impact on the global economy and major financial markets,~~We do not believe there have been no material changes in our exposure to interest rate or foreign currency exchange rate fluctuations since December 31, ~~2020.~~2021. See Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for further information regarding market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of March 31, ~~2021,~~2022, we conducted an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), regarding the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). The term “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of March 31, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

~~There have been~~On January 3, 2022, we implemented the financial module of our new enterprise resource planning (“ERP”) system resulting in certain changes in our internal control over financial reporting. Our new ERP system replaced the legacy system in which our financial transactions are processed and recorded, and the implementation required changes to our interfaces and certain processes. The new ERP system is a significant component of our internal control over financial reporting. With the exception of the new ERP implementation, there were no other changes in our internal control over financial reporting that occurred during the quarter ended March 31, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are, from time to time, subject to claims, suits, and matters arising in the ordinary course of business. Such claims have in the past generally been covered by insurance, but there can be no assurance that our insurance will be adequate to cover all liabilities that may arise out of claims or matters brought against us. We believe the resolution of such legal matters will not have a material adverse effect on our financial position, results of operations, or cash flows, although we cannot predict the ultimate outcome of any such actions. ~~Refer to Note 12,~~ ~~Contingencies, to the consolidated financial statements in Part I, Item 1, of this Quarterly Report on Form 10-Q for additional information.~~

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition and operating results. We believe that these risks and uncertainties include, but are not limited to, those disclosed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, including with respect to the ongoing impacts from the ~~ongoing~~ COVID-19 pandemic. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties, not presently known to us or that we currently deem immaterial, ~~may also~~could materially impair our business, financial condition or results of operations. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The table below sets forth information regarding purchases of our common stock during the three months ended March 31, ~~2021:~~2022:

Period Total Number of Shares Purchased
(a) Average Price Paid
per Share
(b) Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs (1)
(c) Approximate Dollar Value of Shares that May Yet Be Purchased Under
the Plans or Programs
(In thousands) (1)
(d)
January 1, 2021 to January 31, 2021 — $ — — $ 194,850
February 1, 2021 to February 28, 2021 (2)
11,303 $ 169.10 — $ 194,850
March 1, 2021 to March 31, 2021 — $ — — $ 194,850
11,303 —


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (c)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In thousands) (1) (d)

January 1, 2022 to January 31, 2022 (2)	312,058	$	127.22	311,900	$	340,914
February 1, 2022 to February 28, 2022 (2)	4,304	$	128.81	—	$	340,914
March 1, 2022 to March 31, 2022	—	$	—	—	$	340,914
	316,362			311,900

(1) The board of directors of the Company authorized a share repurchase program of up to ~~$300~~$400 million of ~~our~~the Company’s outstanding common stock effective ~~June 12, 2018.~~December 16, 2021. The share repurchase program has no expiration date. All repurchased shares have been retired.

(2) During the ~~three~~ months ~~ended March 31, 2021,~~of January and February 2022, we retired a total of ~~11,303~~4,462 shares that had been issued pursuant to restricted stock award agreements in connection with the payment of tax withholding obligations arising as a result of the vesting of such restricted stock awards. The shares were valued using the transaction date and closing stock price for purposes of such tax withholdings. Shares retired in connection with the payment of tax withholding obligations are not included in, and are not counted against, our ~~$300 million~~ share repurchase authorization.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

(a) Exhibits:


Exhibit Number						Exhibit Title
10.1†*						Consulting Agreement between Bright Horizons Family Solutions LLC and Maribeth Bearfield, dated as of March 31, 2022.
31.1*						Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						Inline XBRL Instance Document - the instance document does not appear in Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).


*			Exhibits filed herewith.
**			Exhibits furnished herewith.
†			Management contract or compensatory plan.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


BRIGHT HORIZONS FAMILY SOLUTIONS INC.
Date:	May ~~10, 2021~~6, 2022	By:	/s/ Elizabeth Boland
			Elizabeth Boland
			Chief Financial Officer
			(Duly Authorized Officer)


PART I. FINANCIAL INFORMATION		Page
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
Signatures		32