UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended March 31, ~~2019~~2020



¨☐	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:~~ File Number 001-35780

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

(Exact name of ~~Registrant~~registrant as specified in its charter)



Delaware				80-0188269
(State or other jurisdiction of incorporation)				(I.R.S. Employer Identification Number)



200 Talcott Avenue
~~200 Talcott Avenue,~~ Watertown, MA	Massachusetts	02472
(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 has (1) 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 x☒ 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 x☒ 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	x☒	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 x☒

~~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~~

As of April ~~26, 2019, the Company had 58,089,568~~24, 2020, there were 60,319,026 shares of common stock ~~$0.001 par value,~~ outstanding.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

FORM 10-Q

For the quarterly period ended March 31, ~~2019~~2020

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)	BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)						BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)

	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	20,129		$	15,450		$	49,230		$	27,872
Accounts receivable — net	130,298			131,178
Accounts receivable — net of allowance for credit losses of $1,836 and $1,226 at March 31, 2020 and December 31, 2019, respectively							171,566			148,855
Prepaid expenses and other current assets	37,208			47,263			63,369			52,161
Total current assets	187,635			193,891			284,165			228,888
Fixed assets — net	603,117			597,141			609,459			636,153
Goodwill	1,381,044			1,347,611			1,389,649			1,412,873
Other intangibles — net	322,388			323,035
Other intangible assets — net							295,337			304,673
Operating lease right-of-use assets	651,480			—			724,053			700,956
Other assets	50,872			62,628			48,331			46,877
Total assets	$	3,196,536		$	2,524,306		$	3,350,994		$	3,330,420
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	10,750		$	10,750		$	10,750		$	10,750
Borrowings under revolving credit facility	50,150			118,200
Accounts payable and accrued expenses	153,328			154,195			188,423			167,059
Current portion of operating lease liabilities	79,617			—			86,252			83,123
Deferred revenue	195,633			170,416			184,400			191,117
Other current liabilities	24,778			30,224			27,356			31,241
Total current liabilities	514,256			483,785			497,181			483,290
Long-term debt — net	1,034,664			1,036,870			1,025,844			1,028,049
Operating lease liabilities	636,831			71,817			722,602			685,910
Other long-term liabilities	92,614			75,368			101,352			92,865
Deferred revenue	5,673			5,683			10,484			10,098
Deferred income taxes	75,486			71,306			56,003			58,940
Total liabilities	2,359,524			1,744,829			2,413,466			2,359,152
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized and no shares issued or outstanding at March 31, 2019 and December 31, 2018	—			—
Common stock, $0.001 par value; 475,000,000 shares authorized; 57,773,679 and 57,494,468 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	58			57
Preferred stock, $0.001 par value; 25,000,000 shares authorized and no shares issued or outstanding at March 31, 2020 and December 31, 2019							—			—
Common stock, $0.001 par value; 475,000,000 shares authorized; 57,920,154 and 57,884,020 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively							58			58
Additional paid-in capital	660,032			648,651			627,337			648,031
Accumulated other comprehensive loss	(58,244		)	(62,355		)	(94,109		)	(50,331		)
Retained earnings	235,166			193,124			404,242			373,510
Total stockholders’ equity	837,012			779,477			937,528			971,268
Total liabilities and stockholders’ equity	$	3,196,536		$	2,524,306		$	3,350,994		$	3,330,420

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data) (Unaudited)	BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data) (Unaudited)						BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data) (Unaudited)

	Three months ended March 31,						Three months ended March 31,
	2019			2018			2020			2019
Revenue	$	501,758		$	463,657		$	506,323		$	501,758
Cost of services	374,811			350,113			397,464			374,811
Gross profit	126,947			113,544			108,859			126,947
Selling, general and administrative expenses	55,875			50,212			57,369			55,875
Amortization of intangible assets	8,162			8,048			8,209			8,162
Income from operations	62,910			55,284			43,281			62,910
Interest expense — net	(11,948		)	(11,503		)	(10,206		)	(11,948		)
Income before income tax	50,962			43,781			33,075			50,962
Income tax expense	(8,920		)	(6,483		)	(2,343		)	(8,920		)
Net income	$	42,042		$	37,298		$	30,732		$	42,042

Earnings per common share:
Common stock — basic	$	0.73		$	0.64		$	0.53		$	0.73
Common stock — diluted	$	0.71		$	0.62		$	0.52		$	0.71

Weighted average number of common shares outstanding:
Weighted average common shares outstanding:
Common stock — basic	57,679,041			58,190,819			57,930,909			57,679,041
Common stock — diluted	58,752,384			59,448,031			58,878,784			58,752,384

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

Three months ended March 31,
2019 2018
Net income $ 42,042
$ 37,298
Other comprehensive income:
Foreign currency translation adjustments 6,978
20,593
Unrealized (loss) gain on interest rate swaps and investments, net of tax (2,867 ) 4,903
Total other comprehensive income 4,111
25,496
Comprehensive income $ 46,153
$ 62,794

BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (Unaudited)

	Three months ended March 31,
	2020			2019
Net income	$	30,732		$	42,042
Other comprehensive income (loss):
Foreign currency translation adjustments	(39,508		)	6,978
Unrealized loss on interest rate swaps and investments, net of tax	(4,270		)	(2,867		)
Total other comprehensive income (loss)	(43,778		)	4,111
Comprehensive income (loss)	$	(13,046	)	$	46,153

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except share data) (Unaudited)	BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except share data) (Unaudited)																	BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except share data) (Unaudited)

	Common Stock				Additional Paid-in Capital			Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total Stockholders’ Equity			Three months ended March 31, 2020
	Shares		Amount															Common Stock					Additional Paid-in Capital			Treasury Stock, at Cost			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total Stockholders’ Equity
Balance at December 31, 2018	57,494,468		$	57	$	648,651		$	—	$	(62,355	)	$	193,124	$	779,477
																		Shares		Amount			Additional Paid-in Capital			Treasury Stock, at Cost			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total Stockholders’ Equity
Balance at January 1, 2020																		57,884,020		$	58
Stock-based compensation expense					3,106										3,106								4,283											4,283
Issuance of common stock under the Equity Incentive Plan	303,929		1		11,054										11,055			298,876		1			12,461											12,462
Options received in net share settlement of stock option exercises and vesting of restricted stock	(24,718	)	—		(2,779		)								(2,779		)
Other comprehensive income										4,111					4,111
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								—
Other comprehensive loss																													(43,778		)			(43,778		)
Net income													42,042		42,042																	30,732		30,732
Balance at March 31, 2019	57,773,679		$	58	$	660,032		$	—	$	(58,244	)	$	235,166	$	837,012
Balance at March 31, 2020																		57,920,154		$	58		$	627,337		$	—		$	(94,109	)	$	404,242	$	937,528

Common Stock

Additional
Paid-in
Capital
Treasury Stock, at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings
Total
Stockholders’
Equity
Shares Amount
Balance at December 31, 2017 58,013,144
$ 58
$ 747,155
$ —
$ (33,296 ) $ 35,143
$ 749,060
Stock-based compensation expense 2,891
2,891
Issuance of common stock under the Equity Incentive Plan 404,080
1
11,332
11,333
Options received in net share settlement of stock option exercises and vesting of restricted stock (33,240 ) —
(3,176 ) (3,176 )
Purchase of treasury stock (85,725 ) (85,725 )
Retirement of treasury stock (839,852 ) (1 ) (85,724 ) 85,725
—
Other comprehensive income 25,496
25,496
Net income 37,298
37,298
Balance at March 31, 2018 57,544,132

$ 58

$ 672,478

$ —

$ (7,800 )
$ 72,441

$ 737,177



	Three months ended March 31, 2019
	Common Stock				Additional Paid-in Capital			Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total Stockholders’ Equity
	Shares		Amount		Additional Paid-in Capital			Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total Stockholders’ Equity
Balance at January 1, 2019	57,494,468		$	57	$	648,651		$	—	$	(62,355	)	$	193,124	$	779,477
Stock-based compensation expense					3,106										3,106
Issuance of common stock under the Equity Incentive Plan	303,929		1		11,054										11,055
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(24,718	)	—		(2,779		)								(2,779		)
Other comprehensive income										4,111					4,111
Net income													42,042		42,042
Balance at March 31, 2019	57,773,679		$	58	$	660,032		$	—	$	(58,244	)	$	235,166	$	837,012

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

	Three months ended March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	30,732		$	42,042
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	28,221			26,462
Impairment losses on long-lived assets	4,970			—
Stock-based compensation expense	4,283			3,106
Deferred income taxes	(5,048		)	3,796
Other non-cash adjustments — net	(691		)	1,460
Changes in assets and liabilities:
Accounts receivable	(23,421		)	2,587
Prepaid expenses and other current assets	(11,422		)	565
Accounts payable and accrued expenses	24,529			(1,099		)
Income taxes	1,367			2,073
Deferred revenue	(5,299		)	23,927
Leases	16,839			2,551
Other assets	1,894			(1,307		)
Other current and long-term liabilities	(2,871		)	850
Net cash provided by operating activities	64,083			107,013

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets	(17,094		)	(24,195		)
Proceeds from the disposal of fixed assets	4,454			3,134
Proceeds from the maturity of debt securities and sale of other investments	3,247			—
Purchases of other investments and debt securities	(42		)	(20,011		)
Payments and settlements for acquisitions — net of cash acquired	(3,529		)	(19,490		)
Net cash used in investing activities	(12,964		)	(60,562		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility	10,500			110,500
Payments under revolving credit facility	(10,500		)	(178,650		)
Principal payments of long-term debt	(2,688		)	(2,688		)
Purchase of treasury stock	(32,658		)	(60		)
Taxes paid related to the net share settlement of stock options and restricted stock	(5,231		)	(2,779		)
Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase	15,962			11,414
Payments of contingent consideration for acquisitions	(1,088		)	—
Net cash used in financing activities	(25,703		)	(62,263		)
Effect of exchange rates on cash, cash equivalents and restricted cash	(1,203		)	548
Net increase (decrease) in cash, cash equivalents and restricted cash	24,213			(15,264		)
Cash, cash equivalents and restricted cash — beginning of period	31,192			38,478
Cash, cash equivalents and restricted cash — end of period	$	55,405		$	23,214

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Three months ended March 31,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42,042
$ 37,298
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 26,462
24,683
Stock-based compensation expense 3,106
2,891
Deferred income taxes 3,796
(490 )
Non-cash lease expense 927
8
Other — net 533
716
Changes in assets and liabilities:
Accounts receivable 2,587
10,009
Prepaid expenses and other current assets 2,128
(15,184 )
Accounts payable and accrued expenses (589 ) 25,037
Deferred revenue 23,927
22,525
Operating lease liabilities 2,551
578
Other assets (1,307 ) (2,830 )
Other current and long-term liabilities 850
607
Net cash provided by operating activities 107,013
105,848
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (24,195 ) (12,812 )
Proceeds from the disposal of fixed assets 3,134
45
Purchases of investments (20,011 ) —
Payments and settlements for acquisitions — net of cash acquired (19,490 ) (16,716 )
Net cash used in investing activities (60,562 ) (29,483 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility 110,500
209,700
Payments under revolving credit facility (178,650 ) (207,400 )
Principal payments of long-term debt (2,688 ) (2,688 )
Purchase of treasury stock (60 ) (85,725 )
Taxes paid related to the net share settlement of stock options and restricted stock (2,779 ) (3,176 )
Proceeds from issuance of common stock upon exercise of options 7,809
7,846
Proceeds from issuance of restricted stock 3,605
4,457
Payments of contingent consideration for acquisitions —
(2,615 )
Net cash used in financing activities (62,263 ) (79,601 )
Effect of exchange rates on cash, cash equivalents and restricted cash 548
431
Net decrease in cash, cash equivalents and restricted cash (15,264 ) (2,805 )
Cash, cash equivalents and restricted cash — beginning of period 38,478
36,570
Cash, cash equivalents and restricted cash — end of period $ 23,214
$ 33,765


BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) (Unaudited)					BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) (Unaudited)

	Three months ended March 31,				Three months ended March 31,
	2019		2018		2020		2019
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	20,129	$	20,324	$	49,230	$	20,129
Restricted cash, included in prepaid expenses and other current assets	3,085		5,441
Restricted cash and cash equivalents, included in other assets	—		8,000
Restricted cash and cash equivalents, included in prepaid expenses and other current assets					6,175		3,085
Total cash, cash equivalents and restricted cash — end of period	$	23,214	$	33,765	$	55,405	$	23,214

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest	$	11,383	$	11,054	$	9,535	$	11,383
Cash payments of income taxes	$	3,094	$	551	$	6,026	$	3,094
Cash paid for amounts included in the measurement of lease liabilities					$	29,130	$	30,034
NON-CASH TRANSACTIONS:
Fixed asset purchases recorded in accounts payable and accrued expenses	$	4,869	$	2,973	$	3,514	$	4,869
Contingent consideration issued in business combination	$	16,375	$	—
Contingent consideration issued for acquisitions					$	—	$	16,375
Operating right-of-use assets obtained in exchange for operating lease liabilities — net					$	56,825	$	24,496

See accompanying notes to condensed consolidated financial statements.

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 child care and early education, back-up child and adult/elder dependent care, ~~(for children~~tuition assistance and ~~adults/elders), tuition reimbursement~~student loan repayment program ~~management and related~~administration, educational ~~consulting services, college admissions~~ advisory services, and other support services for employers and families in the United States, the United Kingdom, the Netherlands, Puerto Rico, Canada, and India. The Company provides services designed to help families, employers ~~families~~ and ~~adult learners~~their employees better ~~address the challenges of~~integrate work and family life, primarily under multi-year contracts with employers who offer child care, ~~and other~~ dependent care, ~~solutions, as well as educational advisory~~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, ~~2019~~2020 and the condensed consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the interim periods ended March 31, ~~2019~~2020 and ~~2018~~2019 have been prepared ~~by the Company~~ 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. 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, ~~2018.~~2019. Certain reclassifications have been made to prior period amounts within the operating section of the condensed consolidated statements of cash flows 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, ~~2019~~2020 and the condensed consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the interim periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, 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.

~~Reclassification~~ — The presentation of the condensed consolidated statement of cash flows for the three months ended March 31, 2018 has been revised to include restricted cash balances within the reported cash, cash equivalents, and restricted cash as of March 31, 2018 and exclude changes in restricted cash from operating cash flows. The end of period amount was previously reported without the restricted cash balance included therein.

Stockholders’ Equity — The board of directors of the Company authorized a share repurchase program of up to $300 million of the Company’s outstanding common stock effective June 12, 2018. The share repurchase program has no expiration date. 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. At March 31, ~~2019, $259.0~~2020, $194.9 million remained available under the repurchase program. The Company has temporarily suspended share repurchases due to the impact of COVID-19 as the Company prioritizes investments to the most critical operating areas.

~~Comprehensive Income or Loss~~COVID-19 Pandemic — ~~Comprehensive income or loss is comprised~~In March 2020, the Company began to experience the impact of ~~net income or loss, foreign currency translation adjustments,~~the COVID-19 pandemic on its global operations, as required business and ~~unrealized gains or losses from interest rate swaps~~school closures and ~~investments, net~~shelter-in-place government mandates in response to the pandemic resulted in the temporary closure of ~~tax.~~a significant portion of the Company’s child care centers. The ~~reclassification~~Company continues to operate critical health care client and “hub” centers to provide care and support services to the children and families of ~~accumulated~~first responders, scientists, health care and medical professionals, and other ~~comprehensive income items into earnings is limited to net gains on interest rate swaps that are discussed in Note 6,~~ ~~Credit Arrangements and Debt Obligations~~.essential workers, as well as the many support industries facilitating their work. As of March 31, ~~2019,~~2020, the ~~balance~~Company operated 1,094 child care and early education centers with the capacity to serve approximately 120,000 children and their families, of ~~accumulated~~which approximately 250 child care centers with the capacity to serve approximately 32,000 children remained open after the temporary center closures in response to the COVID-19 pandemic. These open centers are operating with special COVID-19 protocols in place in order to protect the health and safety of the children and staff, including social distancing procedures for pick-up and drop-off, daily health checks, the use of face masks by the Company’s staff, limited capacity, and enhanced hygiene and cleaning practices. The Company’s back-up care and educational advisory services remain operational and available to clients.

As a result of the economic effects of the COVID-19 pandemic, including the Company’s temporary closure of a significant portion of its centers and the related negative financial impact to its results of operations, the Company considered whether these conditions indicated it was more likely than not that the Company’s $1.4 billion in goodwill and $180.6 million in indefinite-lived intangible assets were impaired. Based on the facts and circumstances as of March 31, 2020, the Company determined it was more likely than not that the fair value of its reporting units and indefinite-lived intangible assets exceeded their carrying amount and therefore, interim impairment analysis was not required.

In addition, the Company reviewed its long-lived assets, including amortizable intangible assets, to determine whether these conditions indicated that the carrying amount of such assets may not be recoverable. During the three months ended March 31, 2020, the Company recognized a $5.0 million impairment loss on long-lived assets for certain centers that are unlikely to recover the carrying amount as a result of the operational disruption caused by recent closures and events. Given the current risks and uncertainties associated with the COVID-19 pandemic, additional impairment losses may occur.

The broad effects of COVID-19, its duration and scope of the ongoing disruption, including the pace of re-opening temporarily closed centers, cannot be predicted and is affected by many interdependent variables and decisions by government authorities and the Company’s client partners. Based on the current guidance and directives of state and local health authorities, in conjunction with recommendations from medical experts and the Centers for Disease Control and Prevention, the temporary closure of the Company’s centers is expected to continue in the second quarter of 2020 and, potentially, in subsequent periods. The timing and cadence of re-opening the temporarily closed centers will vary by jurisdiction and other ~~comprehensive loss~~factors and the Company cannot anticipate when the majority of ~~$58.2~~our centers will re-open. The Company will continue to evaluate the conditions and factors which would govern the re-opening of temporarily closed centers, including health and safety protocols. While the Company recently experienced increased demand for back-up care services, such as in-home care, and minimal disruption to providing educational advisory services, these conditions and trends may not continue in subsequent periods. Given these factors, the Company expects the effects of COVID-19 to its business to continue to adversely impact the results of its operations in the second quarter of 2020, and potentially in subsequent periods.

In response to these developments, the Company has implemented measures in an effort to manage costs and improve liquidity and access to financial resources, and thereby mitigate the impact on the Company’s financial position and operations. These measures include, but are not limited to, the following:

furloughing a significant portion of the Company’s employees in proportion to the number of center closures, including center personnel for temporarily closed centers and related support functions in the Company’s corporate offices;

reducing discretionary spending and overhead costs, while prioritizing investments that support current operations and deferring to future periods nonessential and discretionary investments;

temporary voluntary reductions in compensation to certain executive officers and board members;

temporary suspension of share repurchases;

amending the Company’s credit agreement in April 2020 and May 2020 to increase the borrowing capacity of its revolving credit facility from $225 million ~~includes $60.7~~to $400 million; and,

raising $250 million in gross proceeds from the issuance and sale of ~~cumulative foreign currency translation adjustments, offset by a $2.5 million unrealized gain, net~~common stock in April 2020.

In light of ~~tax, from interest rate swaps.~~these actions and based on the Company’s assumptions about the continued impact of COVID-19 on its operations, the Company believes it has sufficient liquidity to satisfy its obligations for at least the next twelve months. Refer to Note 12, Subsequent Events, for additional information on the issuance and sale of common stock and the amendments to the Company’s credit agreement.

Recently Adopted Pronouncements — On January 1, ~~2019,~~2020, the Company adopted Accounting Standards Update (“ASU”) ~~2016-02,~~ ~~Leases~~ (“ASC 842”), which requires lessees to recognize on the balance sheet assets and liabilities for the rights and obligations created by leases with terms longer than twelve months. The Company adopted the new lease guidance using the modified retrospective approach and the transition method available in accordance with ASU 2018-11, ~~Leases (Topic 842): Targeted Improvements~~, which provides the option to use the effective date as the date of initial application of the guidance. As a result, the comparative information for prior periods has not been adjusted and continues to be reported in accordance with the accounting standards in effect for those periods under the previously applicable guidance.

~~The Company evaluated its identified leases and applied the new lease guidance as further discussed in Note 3,~~ ~~Leases~~. The Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which permitted the Company to not reassess certain accounting aspects of expired or existing leases on transition date.

The adoption of ASC 842 as of January 1, 2019 resulted in the recognition of lease liabilities of $705.7 million, which consisted of current operating lease liabilities of $81.1 million and long-term operating lease liabilities of $624.6 million, and operating lease right-of-use assets (“ROUA”) of $644.3 million. Upon adoption of ASC 842, lease obligations associated with deferred rent and lease incentives recorded under previous guidance were reclassified from other current liabilities and operating lease liabilities to the ROUA. The new lease guidance did not impact the consolidated statement of income or cash flows, or earnings per common share.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815)~~, which expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The guidance also makes certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The Company adopted the new guidance on January 1, 2019. The new guidance with respect to cash flow and net investment hedge relationships existing on the date of adoption is applied on a modified retrospective basis, and the new presentation and disclosure requirements are applied on a prospective basis. There was no impact to the Company’s consolidated financial statements and related disclosures from the adoption of this guidance.

~~New Accounting Pronouncements~~ ~~— In June 2016, the FASB issued ASU~~ 2016-13, Financial ~~Instruments -~~Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,which amends the existing guidance on the accounting for credit losses of certain financial instruments. This guidance requires entities to ~~estimate an~~recognize the expected credit loss over the lifetime of certain financial ~~assets.~~instruments and modifies the impairment model for available-for-sale debt securities. This standard is applied by recording a cumulative effect adjustment to retained earnings upon adoption. There was no impact to the Company’s consolidated financial statements from the adoption of this guidance.

The Company generates accounts receivable from fees charged to parents and employer sponsors, which are generally billed monthly as services are rendered or in advance, and are classified as short term. The Company monitors collections and maintains a provision for expected credit losses based on historical trends, current conditions, and relevant forecasted information, in addition to provisions established for specific collection issues that have been identified. Activity in the allowance for credit losses is as follows (in thousands):



	Three months ended March 31, 2020
Beginning balance at January 1, 2020	$	1,226
Provision	910
Write offs and recoveries	(300		)
Ending balance at March 31, 2020	$	1,836

The Company’s investments in debt securities, which were classified as available-for-sale, are further disclosed in Note 9, Fair Value Measurements. As of March 31, 2020, the available-for-sale debt securities are not in an unrealized loss position, and therefore there is no allowance for credit losses.

Recently Issued Pronouncements — In December 2019, the Financial Accounting Standards Board 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. This ASU is effective for fiscal years beginning after December 15, ~~2019~~2020 and interim periods within those fiscal years, with early adoption permitted. The ~~Company~~adoption of this standard is ~~currently evaluating the timing and~~not expected to have a material impact ~~of adoption~~ on the Company’s consolidated financial ~~statements.~~statements and related disclosures.

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 (in thousands):


									Full service center-based child care		Back-up care		Educational advisory services		Total
Three months ended March 31, 2020
North America									$	298,067	$	70,557	$	20,765	$	389,389
Europe									113,324		3,610		—		116,934
	Full service center-based child care		Back-up care		Educational advisory services		Total		$	411,391	$	74,167	$	20,765	$	506,323
Three months ended March 31, 2019
North America	$	304,312	$	62,007	$	18,744	$	385,063	$	304,312	$	62,007	$	18,744	$	385,063
Europe	114,008		2,687		—		116,695		114,008		2,687		—		116,695
	$	418,320	$	64,694	$	18,744	$	501,758	$	418,320	$	64,694	$	18,744	$	501,758
Three months ended March 31, 2018
North America	$	283,246	$	53,454	$	16,353	$	353,053
Europe	109,379		1,225		—		110,604
	$	392,625	$	54,679	$	16,353	$	463,657

The classification “North America” is comprised of the Company’s United States, Canada, and Puerto Rico operations and the classification “Europe” includes the United Kingdom, Netherlands, and India operations.

Deferred ~~Revenues~~Revenue

The Company records deferred revenue when payments are received in advance of the Company’s performance under the contract, which are recognized as revenue as the performance obligation is satisfied. During the three months ended March 31, 2020, $123.8 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2019. During the three months ended March 31, 2019, $113.4 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2018. ~~During the three months ended March 31, 2018, $102.8 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2017.~~

Remaining Performance Obligations

The transaction price allocated to the remaining performance obligations relates to services that are paid or invoiced in advance. 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 Company’s remaining performance obligations not subject to the practical expedients ~~are~~were not material.

3. LEASES

~~The Company adopted Accounting Standards Codification (“ASC”) No. 842,~~ ~~Leases~~ ~~(“ASC 842”), effective January 1, 2019. As discussed in the recently adopted pronouncements section of Note 1,~~ ~~Organization and Basis of Presentation~~, the effective date was used as the date of initial application on transition. Therefore, comparative information for prior periods has not been adjusted and continues to be reported in accordance with the previous guidance under ASC 840, ~~Leases~~.

The Company has operating leases for certain of its full service and back-up 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, the Netherlands, and Canada. Most of the leases expire within 10 ~~years to15~~to 15 years and many contain renewal options ~~to renew~~ and/or ~~terminate the leases. Certain of the Company’s lease agreements include variable lease payments based on an index or rate, such as consumer price indices, escalation of rates or market adjustment~~termination provisions.

At contract inception, the Company reviews the terms to determine if an arrangement is a lease. For leases with initial terms greater than twelve months, ROUA and lease liabilities are recognized on the consolidated balance sheet based on the present value of the unpaid lease payments at the lease commencement date. Lease payments include fixed lease payments as well as variable payments that depend on an index or rate based on the applicable index or rate at the lease commencement date. ROUA are initially measured as the amount of the initial lease liability, adjusted for initial direct costs, lease payments made at or before the commencement date, and reduced by lease incentives received. The Company includes options to renew or terminate when determining the lease term when it is reasonably certain that the option will be exercised. At commencement date, the Company assesses whether it is reasonably certain to exercise an option by considering all relevant economic factors, including contract-based, asset-based, market-based, and entity-based factors. For leases with a term of one year or less (“short-term leases”), the Company elected to not recognize the lease liability for these arrangements and the lease payments are recognized in the consolidated statement of income on a straight-line basis over the lease term.

The Company’s leases generally do not provide an implicit interest rate, therefore, the Company uses an estimate of its incremental borrowing rate based on the lease terms and economic environment at commencement date in determining the present value of future payments.

The Company’s real estate leases may contain lease and non-lease components. The Company elected to account for lease and non-lease components in a contract as part of a single lease component. The non-lease components typically consist of common-area maintenance and utility costs. Fixed payments are considered part of the single lease component and included in the ROUA and lease liabilities, and variable payments are expensed as incurred. Additionally, lease contracts typically include other costs that do not transfer a separate good or service, such as reimbursement for real estate taxes and insurance, which are expensed as incurred as variable lease costs.

~~The Company determines if its lease obligations are operating or finance leases at the lease commencement date.~~ The Company does not have any finance leases as of March 31, 2019. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments, including those related to changes in the commencement date index or rate, are recorded to the consolidated statement of income as incurred. The Company’s lease agreements do not contain material restrictive covenants.2020.

Lease Expense

The components of lease expense were as follows (in thousands):


				Three months ended March 31,
	Consolidated Statement of Income Classification	Three months ended March 31, 2019		2020		2019
Operating lease expense ⁽¹⁾	Cost of Services and Selling, general and administrative expenses	$	30,960	$	33,861	$	30,960
Variable lease expense ⁽¹⁾	Cost of Services and Selling, general and administrative expenses	8,333		9,233		8,333
Total lease expense		$	39,293	$	43,094	$	39,293

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

~~Rent expense for the three months ended March 31, 2018 was $30.8 million, as determined under ASC 840.~~

Other Information

~~Supplemental cash flow information was as follows (in thousands):~~

Three months ended March 31, 2019
Operating Cash Flows:
Cash paid for amounts included in the measurement of lease liabilities $ 30,034
Non-cash Transaction:
Operating right-of-use assets obtained in exchange for operating lease liabilities — net $ 24,496

The weighted average remaining lease term and the weighted average discount rate ~~as of March 31, 2019~~ were as follows:



	~~Operating Leases~~
~~Weighted average remaining lease term (in years)~~	~~11.3~~
~~Weighted average discount rate~~	~~6.5%~~



	March 31, 2020	December 31, 2019
Weighted average remaining lease term (in years)	10	10
Weighted average discount rate	6.1%	6.2%

Maturity of Lease Liabilities

The following table summarizes the maturity of lease liabilities as of March 31, ~~2019~~2020 (in thousands):


	Operating Leases			Operating Leases
Remainder of 2019	$	83,199
2020	120,980
Remainder of 2020				$	90,468
2021	105,723			124,795
2022	100,006			120,283
2023	91,622			111,985
2024				101,015
Thereafter	498,783			555,120
Total lease payments	1,000,313			1,103,666
Less imputed interest	(283,865		)	(294,812		)
Total lease liabilities	716,448
Present value of lease liabilities				808,854
Less current portion of operating lease liabilities	(79,617		)	(86,252		)
Long-term operating lease liabilities	$	636,831		$	722,602

As of March 31, ~~2019,~~2020, the Company had entered into additional operating leases that have not yet commenced with total ~~payments~~fixed payment obligations of ~~$96.1~~$52.0 million. ~~These~~The leases are expected to commence between the second quarter of fiscal ~~2019~~2020 and the ~~first~~fourth quarter of fiscal 2021 ~~with~~and have initial lease terms of ~~generally 10 years to~~approximately 15 years.

~~As of December 31, 2018, we disclosed the following future payments under operating leases as determined in accordance with the previous guidance under ASC 840 (in thousands):~~

Operating Leases
2019 $ 120,352
2020 114,628
2021 101,710
2022 95,529
2023 87,530
Thereafter 476,861
Total future minimum lease payments $ 996,610

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 our existing operations, as well as from benefits derived from gaining the related assembled workforce.

~~2019~~2020 Acquisitions

During the three months ended March 31, ~~2019,~~2020, the Company acquired ~~one~~1 center in the United States, ~~and one back-up care provider in the United Kingdom, in two separate business acquisitions,~~ which ~~were each~~was accounted for as a business ~~combinations. These businesses were~~combination. The center was acquired for cash consideration of ~~$19.5~~$3.5 million, ~~net~~including fixed assets of ~~cash acquired of $0.4~~$2.3 million ~~and consideration payable of $0.3 million. Additionally, contingent consideration of up~~in relation to ~~$19.7 million may be payable over~~ the next four years if certain future performance targets in the back-up care segment are met. The Company recorded a preliminary fair value estimate of the contingent consideration of $16.4 million, as disclosed in Note 9, ~~Fair Value Measurements~~.real estate acquired. The Company recorded goodwill of ~~$28.7~~$1.2 million ~~related to the back-up care segment, which will not be deductible for tax purposes, and $1.6 million related~~ to the full service center-based child care segment, all of which will be deductible for tax purposes. In addition, the Company recorded intangible assets of $7.2 million, primarily consisting of client relationships that will be amortized over five years, as well as fixed assets of $1.9 million, and deferred tax liabilities of $1.4 million in relation to these acquisitions.

The 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, ~~2019,~~2020, the purchase price ~~allocations~~allocation for ~~these acquisitions remain~~this acquisition remains open as the Company gathers additional information regarding the assets acquired and the liabilities ~~assumed, and finalizes its determination of the estimated fair value of the contingent consideration at the date of acquisition.~~assumed. The operating results for the acquired ~~businesses~~business are included in the consolidated results of operations from the date of acquisition, ~~which~~and were not material to the Company’s financial results.

During the three months ended March 31, 2020, the Company paid $1.1 million for contingent consideration related to an acquisition completed in 2018, which had been recorded as a liability at the date of acquisition.

2019 Acquisitions

During the year ended December 31, ~~2018,~~2019, the Company acquired ~~ten~~3 centers and the tuition program management division of another company in the United States, 4 centers in the Netherlands, ~~six centers in the United States,~~ and ~~20 centers~~1 back-up care provider in the United Kingdom, in ~~seven~~8 separate business acquisitions, which were each accounted for as business combinations. ~~The centers~~These businesses were acquired for cash consideration of ~~$66.8~~$53.3 million, net of cash acquired of ~~$4.2~~$1.2 million, and consideration payable of ~~$5.4~~$0.7 million. Additionally, contingent consideration of up to $20.0 million may be payable over the next three years if certain future performance targets are met. The Company recorded a fair value estimate of the contingent consideration of $13.9 million. The Company recorded goodwill of ~~$60.3~~$25.4 million related to the back-up care segment, which will not be deductible for tax purposes, $14.0 million related to the educational advisory services segment, which will be deductible for tax purposes, and $15.2 million related to the full service center-based child care segment, of which ~~$13.9~~$3.9 million will be deductible for tax purposes. In addition, the Company recorded intangible assets of ~~$8.6~~$14.6 million primarily consisting of ~~trademarks and~~ customer relationships that will be amortized over ~~two years to~~ five years, as well as fixed assets and technology of ~~$8.3 million, working capital of $1.1~~$3.1 million, and deferred tax liabilities of $1.9 million in relation to these acquisitions.

The 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, ~~2019,~~2020, the purchase price allocations for ~~five~~6 of the ~~2018~~2019 acquisitions remain open as the Company gathers additional information regarding the assets acquired and the liabilities assumed. ~~The operating results for the acquired businesses are included in the consolidated results of operations from the date of acquisition, which were not material to the Company’s financial results.~~

During the year ended December 31, ~~2018,~~2019, the Company paid ~~$3.1~~$4.2 million for deferred and contingent consideration, which were accrued at the date of acquisition. Of this settlement, ~~of a portion of~~$3.5 million was for deferred consideration payable related to an acquisition completed in 2018, and $0.7 million was the final installment for contingent consideration related to an acquisition completed in 2016. During the three months ended March 31, 2018, the Company paid $2.7 million of this settlement, of which $2.6 million was accrued contingent consideration with the remaining balance recorded to the income statement.

5. GOODWILL AND INTANGIBLE ASSETS

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


	Full service center-based child care			Back-up care			Educational advisory services		Total			Full service center-based child care			Back-up care			Educational advisory services			Total
Balance at January 1, 2018	$	1,114,886		$	168,105		$	23,801	$	1,306,792
Balance at January 1, 2019												$	1,155,705		$	168,105		$	23,801		$	1,347,611
Additions from acquisitions	60,266			—			—		60,266			15,228			25,350			14,000			54,578
Adjustments to prior year acquisitions												(83		)	—			—			(83		)
Effect of foreign currency translation	(19,447		)	—			—		(19,447		)	10,380			387			—			10,767
Balance at December 31, 2018	1,155,705			168,105			23,801		1,347,611
Balance at December 31, 2019												1,181,230			193,842			37,801			1,412,873
Additions from acquisitions	1,596			28,717			—		30,313			1,167			—			—			1,167
Adjustments to prior year acquisitions												(328		)	—			(125		)	(453		)
Effect of foreign currency translation	3,339			(219		)	—		3,120			(22,196		)	(1,742		)	—			(23,938		)
Balance at March 31, 2019	$	1,160,640		$	196,603		$	23,801	$	1,381,044
Balance at March 31, 2020												$	1,159,873		$	192,100		$	37,676		$	1,389,649

The Company also has intangible assets, which consisted of the following at March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


March 31, 2019	Weighted average amortization period	Cost		Accumulated amortization			Net carrying amount
March 31, 2020									Weighted average amortization period	Cost		Accumulated amortization			Net carrying amount
Definite-lived intangibles:
Customer relationships	14 years	$	398,840	$	(261,653	)	$	137,187	14 years	$	402,504	$	(289,824	)	$	112,680
Trade names	7 years	10,269		(6,002		)	4,267		6 years	10,138		(8,099		)	2,039
		409,109		(267,655		)	141,454			412,642		(297,923		)	114,719
Indefinite-lived intangibles:
Trade names	N/A	180,934		—			180,934		N/A	180,618		—			180,618
		$	590,043	$	(267,655	)	$	322,388		$	593,260	$	(297,923	)	$	295,337


December 31, 2018	Weighted average amortization period	Cost		Accumulated amortization			Net carrying amount
December 31, 2019									Weighted average amortization period	Cost		Accumulated amortization			Net carrying amount
Definite-lived intangibles:
Customer relationships	15 years	$	391,220	$	(253,588	)	$	137,632	14 years	$	404,667	$	(283,597	)	$	121,070
Trade names	7 years	10,183		(5,609		)	4,574		6 years	10,656		(8,144		)	2,512
		401,403		(259,197		)	142,206			415,323		(291,741		)	123,582
Indefinite-lived intangibles:
Trade names	N/A	180,829		—			180,829		N/A	181,091		—			181,091
		$	582,232	$	(259,197	)	$	323,035		$	596,414	$	(291,741	)	$	304,673

The Company estimates that it will record amortization expense related to intangible assets existing as of March 31, ~~2019~~2020 as follows ~~over the next five years~~ (in thousands):


	Intangible Asset Amortization		Estimated amortization expense
Remainder of 2019	$	24,002
2020	$	29,492
Remainder of 2020			$	23,200
2021	$	27,340	$	28,077
2022	$	24,973	$	25,774
2023	$	23,799	$	24,905
2024			$	11,051

6. CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS

Senior ~~secured credit facilities~~Secured Credit Facilities

The Company’s $1.3 billion senior secured credit facilities consist of a $1.1 billion secured term loan facility (“term loan facility”) and a $225 million multi-currency revolving credit facility (“revolving credit facility”). The term loans mature on November 7, 2023 and require quarterly principal payments of $2.7 million, with the remaining principal balance due on November 7, 2023. Refer to Note 12, Subsequent Events, for changes to the Company’s senior secured credit facilities.

Outstanding term loan borrowings were as follows (in thousands):


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Term loans	$	1,053,500		$	1,056,188		$	1,042,750		$	1,045,438
Deferred financing costs and original issue discount	(8,086		)	(8,568		)	(6,156		)	(6,639		)
Total debt	1,045,414			1,047,620			1,036,594			1,038,799
Less current maturities	10,750			10,750			10,750			10,750
Long-term debt	$	1,034,664		$	1,036,870		$	1,025,844		$	1,028,049

The revolving credit facility matures on July 31, ~~2022. Borrowings~~2022. There were 0 borrowings outstanding on the revolving credit facility ~~were $50.2 million~~ at March 31, ~~2019~~2020 and ~~$118.2 million at~~ December 31, ~~2018.~~2019.

All borrowings under the credit agreement are subject to variable interest. On May 31, 2018, the Company amended its existing senior credit facilities to, among other changes, reduce the applicable interest rates of the term loan facility and the revolving credit facility. Effective as of May 31, 2018, borrowingsBorrowings under the term loan facility bear interest at a rate per annum of 0.75% over the base rate, or 1.75% over the eurocurrency rate, which is the one, two, three or six month LIBOR rate or, with applicable lender approval, the twelve month or less than one month LIBOR rate. With respect to the term loan facility, the base rate is subject to an interest rate floor of 1.75% and the eurocurrency rate is subject to an interest rate floor of 0.75%. Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 0.50% to 0.75% over the base rate, or 1.50% to 1.75% over the eurocurrency rate. Refer to Note 12, Subsequent Events, for changes to interest rates applicable to the Company’s revolving credit facility.

The effective interest rate for the term loans was ~~4.25%~~2.74% and ~~4.27%~~3.55% at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and the weighted average interest rate was ~~4.25%~~3.42% and ~~3.61%~~4.25% for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, prior to the effects of any interest rate swap arrangements. The ~~effective interest rate for the revolving credit facility was 3.50% and 4.76% at March 31, 2019 and December 31, 2018, respectively. The~~ weighted average interest rate for the revolving credit facility was ~~4.10%~~5.41% and ~~3.70%~~4.10% for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Certain financing fees and original issue discount costs are capitalized and are being amortized over the terms of the related debt instruments and amortization expense is included in interest expense. Amortization expense of deferred financing costs ~~were~~was $0.4 million for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. Amortization expense of original issue discount costs ~~were~~was $0.1 million for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

All obligations under the senior secured credit facilities are secured by substantially all the assets of the Company’s 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, ~~our~~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 our subsidiaries; alter the business conducted; enter into agreements restricting ~~our~~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., ~~our~~the Company’s direct subsidiary, to be a passive holding company, subject to certain exceptions. The revolving credit facility requires Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a maximum consolidated first lien net leverage ratio that is a quarterly maintenance based financial covenant. A breach of this covenant is subject to certain equity cure rights. Refer to Note 12, Subsequent Events, for changes to the financial covenant applicable to the Company’s revolving credit facility.

~~The future~~Future principal payments ~~under~~of long-term debt are as follows for the ~~term loans at March~~years ending December 31 ~~2019 were as follows~~ (in thousands):


	Term Loans		Term Loans
Remainder of 2019	$	8,062
2020	10,750
Remainder of 2020			$	8,062
2021	10,750		10,750
2022	10,750		10,750
2023	1,013,188		1,013,188
	$	1,053,500
Total future principal payments			$	1,042,750

Interest Rate Swap Agreements

The Company is subject to interest rate risk as all borrowings under the senior secured credit facilities are subject to variable ~~interest.~~interest rates. In October 2017, the Company entered into variable-to-fixed interest rate swap agreements to mitigate the exposure to variable interest arrangements on $500 million notional amount of the outstanding term loan borrowings. These swap agreements, designated and accounted for as cash flow hedges 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~~The notional amount ~~has been~~is subject to ana 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.

The interest rate swaps are recorded on the Company’s consolidated balance sheet at fair value and classified based on the instruments’ maturity dates. The Company records gains or losses resulting from changes in the fair value of the interest rate swaps to other comprehensive income or ~~loss and~~loss. These gains or 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~~As of March 31, 2020 and December 31, 2019, the fair value of the interest rate swap agreements was a liability of $8.9 million and $2.9 million, respectively, which was recorded in other long-term liabilities on the consolidated balance sheet.

For the three months ended March 31, 2020, the effect of the interest rate swap agreements on other comprehensive income (loss) was as follows (in thousands):



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)
Interest rate swaps	$	(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	)

Consolidated balance sheet classification March 31, 2019 December 31, 2018
Interest rate swaps—asset Other assets $ 3,955
$ 7,901

For the three months ended March 31, 2019, the effect of the interest rate swap agreements on other comprehensive income (loss) was as follows (in thousands):


Derivatives designated as cash flow hedging instruments	Amount of gain (loss) recognized in other comprehensive income			Consolidated statement of income classification	Amount of net gain (loss) reclassified into earnings			Total effect on other comprehensive income			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)
Interest rate swaps	$	(3,189	)	Interest expense — net	$	757		$	(3,946	)	$	(3,189	)	Interest expense — net	$	757		$	(3,946	)
Income tax effect	858			Income tax expense	(203		)	1,061			858			Income tax expense	(203		)	1,061
Net of income taxes	$	(2,331	)		$	554		$	(2,885	)	$	(2,331	)		$	554		$	(2,885	)

~~For the three months ended March 31, 2018, the effect of the interest rate swap agreements on other comprehensive income was as follows (in thousands):~~

Derivatives designated as cash flow hedging instruments Amount of gain (loss) recognized in other comprehensive income Consolidated statement of income classification Amount of net gain (loss) reclassified into earnings Total effect on other comprehensive income
Interest rate swaps $ 6,369
Interest expense — net $ (366 ) $ 6,735
Income tax effect (1,732 ) Income tax expense 100
(1,832 )
Net of income taxes $ 4,637
$ (266 ) $ 4,903

During the next twelve months, the Company estimates that a ~~gain~~net loss of ~~$2.4~~$5.7 million, pre-tax, will be reclassified from accumulated other comprehensive ~~loss~~income (loss) and recorded ~~as a reduction~~ to interest expense, related to these interest rate swap agreements.

7. EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted earnings per share using the two-class method (in thousands, except share and per share amounts):


Basic earnings per share:	Three months ended March 31,				Three months ended March 31,
	2019		2018		2020		2019
Net income	$	42,042	$	37,298	$	30,732	$	42,042
Allocation of net income to common stockholders:
Common stock	$	41,845	$	37,100	$	30,587	$	41,845
Unvested participating shares	197		198		145		197
	$	42,042	$	37,298	$	30,732	$	42,042

Weighted average number of common shares:
Common stock	57,679,041		58,190,819		57,930,909		57,679,041
Unvested participating shares	271,153		310,888		274,801		271,153
Earnings per common share:
Common stock	$	0.73	$	0.64	$	0.53	$	0.73


Diluted earnings per share:	Three months ended March 31,						Three months ended March 31,
	2019			2018			2020			2019
Earnings allocated to common stock	$	41,845		$	37,100		$	30,587		$	41,845
Plus earnings allocated to unvested participating shares	197			198
Less adjusted earnings allocated to unvested participating shares	(193		)	(194		)
Earnings allocated to unvested participating shares							145			197
Adjusted earnings allocated to unvested participating shares							(143		)	(193		)
Earnings allocated to common stock	$	41,849		$	37,104		$	30,589		$	41,849

Weighted average number of common shares:
Common stock	57,679,041			58,190,819			57,930,909			57,679,041
Effect of dilutive securities	1,073,343			1,257,212			947,875			1,073,343
	58,752,384			59,448,031			58,878,784			58,752,384
Earnings per common share:
Common stock	$	0.71		$	0.62		$	0.52		$	0.71

Options outstanding to purchase ~~0.8~~0.5 million ~~shares~~ and ~~0.4~~0.8 million shares of common stock were excluded from diluted earnings per share for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, 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 ~~17.5%~~7.1% and ~~14.8%~~17.5% for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively. ~~The~~For the three months ended March 31, 2020, the Company’s annual effective ~~income~~ tax rate is ~~based upon estimated~~highly sensitive to change in estimates of total ordinary income ~~before income~~(or loss), and therefore a reliable estimate cannot be made. Accordingly, the actual effective tax rate for the ~~year, by jurisdiction, and estimated permanent tax adjustments.~~year-to-date period has been used. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including changes to estimated income before income tax, jurisdictional mix of estimated income before income tax, 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. During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the excess tax benefit from stock-based compensation expense decreased tax expense by $6.9 million and $4.6 million, respectively. For the three months ended March 31, 2020 and ~~$5.5 million, respectively, and~~2019, prior to the inclusion of the excess tax benefit, the effective income tax ~~rates~~rate approximated ~~26%~~28% and ~~28%~~26%, respectively.

The Company’s unrecognized tax benefits were ~~$5.4~~$4.5 million at ~~both~~ March 31, ~~2019~~2020 and $4.3 million at December 31, ~~2018.~~2019, 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 ~~lapse.~~lapses. The impact of the amount of such changes to previously recorded uncertain tax positions could range from ~~zero~~0 to ~~$2.5 million, exclusive of interest and penalties.~~

$0.8 million.

The Company and its domestic subsidiaries are subject to audit for U.S. federal income tax as well as multiple state jurisdictions. U.S. federal income tax returns are typically subject to examination by the Internal Revenue Service (“IRS”) and ~~have a~~the statute of limitations offor federal tax returns is three years. The ~~Company's~~Company’s filings for the tax years ~~2015~~2016 through ~~2018~~2019 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 ~~years~~ 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, 2019, there was one state audit in process and~~The Company’s filings for the tax years from ~~2014~~2015 to ~~2018~~2019 are subject to ~~audit.~~audit and, as of March 31, 2020, there was 1 state audit in process.

The Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom, the Netherlands, India, Canada, 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 ~~year~~ to five years.

9. FAIR VALUE MEASUREMENTS

~~The Company defines fair~~Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement ~~date and applies the following fair~~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 ~~(Level 1 measurements)~~ and the lowest priority to unobservable ~~inputs (Level 3 measurements).~~inputs. The Company uses observable inputs where relevant and whenever possible. The three levels of the hierarchy are defined as follows:

Level 1 — ~~Quoted~~Fair value is derived using quoted prices ~~are available in~~from active markets for identical ~~investments as of the reporting date.~~investments.

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

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

~~The following methods and assumptions were used to estimate the fair value and determine the fair value hierarchy classification of each class of financial measurement.~~

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, and borrowings under the revolving credit facility approximates their fair value because of their short-term nature.

Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents and accounts receivable. There were no significant changes to the Company’s exposure to credit risk during the three months ended March 31, ~~2019.~~2020.

Long-term ~~debt~~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, which approximates carrying value. As such, the Company’s long-term debt was classified as Level 1, as defined under U.S. GAAP. As of March 31, ~~2019 and December 31, 2018,~~2020, the carrying value and estimated fair value of long-term debt was ~~$1.1~~$1.04 billion and $1.0 billion, respectively. As of December 31, 2019, the carrying value and estimated fair value of long-term debt was $1.05 billion.

Interest ~~rate swap agreements~~Rate Swap Agreements — The Company’s interest rate swap agreements are recorded at fair value, ~~in other assets on the consolidated balance sheet. As of March 31, 2019 and December 31, 2018, the fair value of the interest rate swaps were $4.0 million and $7.9 million, respectively,~~ which were 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 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, it was not considered a significant input. The fair value of the interest rate swaps is classified as Level 2, as defined under U.S. GAAP.

~~Debt securities~~ ~~— During the three months ended~~ As of March 31, 2020 and December 31, 2019, the ~~Company purchased marketable debt securities,~~fair value of the interest rate swap agreements was a liability of $8.9 million and $2.9 million, respectively, which were ~~classified as available-for-sale.~~recorded in other long-term liabilities on the consolidated balance sheets.

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. These securities are held in escrow by the Company’s wholly-owned captive insurance company and were purchased with restricted cash. As such, these securities are not available to fund the Company’s operations. These securities are recorded at fair value with $6.0 million included in prepaid expenses and other current assets and $13.9 million in other assets on the consolidated balance sheet as of March 31, 2019 based on their scheduled maturity. These securities are valued using quoted prices available in active markets. As such, the Company’s debt securities are classified as Level 1, as defined under U.S. GAAP. As of March 31, ~~2019,~~2020, the fair value ~~and amortized cost~~ of the available-for-sale debt securities was ~~$19.9 million.~~$22.1 million and was classified based on the instruments’ maturity dates, with $16.2 million included in prepaid expenses and other current assets and $5.9 million in other assets on the consolidated balance sheet. As of December 31, 2019, the fair value of the available-for-sale debt securities was $24.9 million, with $17.0 million included in prepaid expenses and other current assets and $7.9 million in other assets on the consolidated balance sheet. At March 31, 2020 and December 31, 2019, the amortized cost was $21.9 million and $24.9 million, respectively. The debt securities held at March 31, ~~2019~~2020 had remaining maturities ranging from less than one ~~year~~ to approximately ~~two~~1.75 years. Unrealized gains and losses, net of tax, on available-for-sale debt securities are included in accumulated other comprehensive ~~loss, which~~income (loss), and were immaterial for the three months ended March 31, 2020 and 2019. During the three months ended March 31, 2020, the Company received proceeds from the maturity of debt securities of $3.0 million, which are included in prepaid expenses and other current assets on the consolidated balance sheet at March 31, 2020 as restricted cash. The Company did not realize any gains or losses on its debt securities during the three months ended March 31, 2020 and 2019. ~~The Company regularly reviews its available-for-sale debt securities for other-than-temporary impairment.~~

Liabilities for Contingent Consideration — The Company is subject to contingent consideration arrangements in connection with certain business combinations as disclosed in Note 4, Acquisitions. Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration ~~transferred in~~payable for the related business combination and subsequent changes in fair value recorded to selling, general and administrative expenses in the Company’s consolidated ~~statements~~statement of income. The fair value of the contingent consideration ~~recorded in the three months ended March 31, 2019~~ was calculated using a real options model based on probability-weighted ~~outcomes.~~outcomes of meeting certain future performance targets. The key inputs to the valuation are the projections of future financial results in relation to the business. ThThe Com~~e Company~~pany classified the contingent consideration liability as a Level 3 fair value measurement due to the lack of observable inputs used in the ~~probability-weighting of payment outcomes.~~model.

The following table provides a roll forward of the fair value of recurring Level 3 fair value measurements (in thousands):

Three months ended March 31, 2019
Beginning balance of liabilities for contingent consideration $ 1,930
Issuance of contingent consideration in connection with acquisitions 16,375
Foreign currency translation (105 )
Ending balance of liabilities for contingent consideration $ 18,200



	Three months ended March 31, 2020
Balance at January 1, 2020	$	15,987
Settlement of contingent consideration liabilities	(1,088		)
Changes in fair value	422
Foreign currency translation	(1,044		)
Balance at March 31, 2020	$	14,277

Nonrecurring fair value estimates —During the three months ended March 31, 2020, the Company recognized a $5.0 million impairment loss on long-lived assets for certain centers. The impairment loss was included in cost of services on the consolidated statement of income, which has 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 assets, calculated using a discounted cash flow model, with unobservable inputs. The fair value of such assets was insignificant. 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 or losses from interest rate swaps and investments, net of tax.

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



	Three months ended March 31, 2020
	Foreign currency translation adjustments			Unrealized gain (loss) on interest rate swaps			Unrealized gain (loss) on investments		Total
Balance at January 1, 2020	$	(47,835	)	$	(2,566	)	$	70	$	(50,331	)
Other comprehensive income (loss) before reclassifications, net of tax	(39,508		)	(4,607		)	129		(43,986		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	—			208			—		208
Net current period other comprehensive income (loss)	(39,508		)	(4,399		)	129		(43,778		)
Balance at March 31, 2020	$	(87,343	)	$	(6,965	)	$	199	$	(94,109	)



	Three months ended March 31, 2019
	Foreign currency translation adjustments			Unrealized gain (loss) on interest rate swaps			Unrealized gain (loss) on investments		Total
Balance at January 1, 2019	$	(67,648	)	$	5,293		$	—	$	(62,355	)
Other comprehensive income (loss) before reclassifications, net of tax	6,978			(2,331		)	18		4,665
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	—			(554		)	—		(554		)
Net current period other comprehensive income (loss)	6,978			(2,885		)	18		4,111
Balance at March 31, 2019	$	(60,670	)	$	2,408		$	18	$	(58,244	)

~~10.~~11. SEGMENT INFORMATION

~~Bright Horizons’~~The Company’s services are comprised of full service center-based child care, back-up care, and educational advisory ~~services. As such,~~services, which also represent the ~~Company has determined that it has three~~Company’s 3 operating ~~segments, which are also its~~and reportable segments. The full service center-based child care segment includes the traditional center-based child care and early education, preschool, and elementary ~~education, which have similar operating characteristics and meet the criteria for aggregation.~~education. The Company’s back-up care segment consists of center-based back-up child care, and in-home child and adult/elder dependent care. The Company’s educational advisory services segment consists of tuition ~~reimbursement~~assistance and student loan repayment program ~~management and related~~administration, educational consulting services, and college admissions advisory ~~services, which have similar operating characteristics and meet the criteria for aggregation.~~services. The Company and its chief operating decision ~~makers~~maker evaluate performance based on revenues and income from operations. 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 ~~additional~~segment asset information is produced or included herein.

Revenue and income from operations by reportable segment was as follows (in thousands):


	Full service center-based child care		Back-up care		Educational advisory services		Total		Full service center-based child care		Back-up care		Educational advisory services		Total
Three months ended March 31, 2019
Three months ended March 31, 2020
Revenue	$	418,320	$	64,694	$	18,744	$	501,758	$	411,391	$	74,167	$	20,765	$	506,323
Income from operations ⁽¹⁾	41,530		17,117		4,263		62,910		16,747		22,239		4,295		43,281

Three months ended March 31, 2018
Three months ended March 31, 2019
Revenue	$	392,625	$	54,679	$	16,353	$	463,657	$	418,320	$	64,694	$	18,744	$	501,758
Income from operations⁽²⁾	36,911		14,125		4,248		55,284		41,530		17,117		4,263		62,910

(1)

For the three months ended March 31, 2020, income from operations included $5.0 million of impairment costs for long-lived assets due to the impact of COVID-19 on the Company’s operations, and $0.7 million related to occupancy costs incurred for its new corporate headquarters during the construction period, which represent duplicative corporate office costs in 2020 while the Company also continues to carry the costs for its existing corporate headquarters. These costs have been allocated to the full service center-based child care segment.


(2)	For the three months ended March 31, 2019, income from operations included $0.4 million of expenses related to completed acquisitions, which have been allocated to the back-up care segment.

~~(2) For~~

12. SUBSEQUENT EVENTS

On April 21, 2020, the ~~three months ended~~Company issued and sold 2,138,580 shares of unregistered common stock, par value $0.001 per share, to Durable Capital Master Fund LP at a price of $116.90 per share. The Company is required to file a registration statement to register the resale of these shares within 90 days or is subject to liquidated damages. The Company received gross proceeds from the offering of $250 million. The proceeds may be used for working capital and general corporate purposes.

On April 24, 2020, the Company amended its existing senior credit facilities to, among other things, increase the borrowing capacity of its revolving credit facility from $225 million to $385 million, modify the interest rates applicable to borrowings under the revolving credit facility from a range of 50 to 75 basis points over the base rate (as defined in the Credit Agreement) or a range of 150 to 175 basis points over the eurocurrency rate (as defined in the Credit Agreement) to a range of 50 to 125 basis points over the base rate or 150 to 225 basis points over the eurocurrency rate, and modify the unused commitment fee applicable to the revolving credit commitments from a range of 30 to 32.5 basis points to a range of 30 to 50 basis points. In addition, the amendment modifies the financial covenant applicable to the revolving credit facility for the following 4 fiscal quarters by requiring the Company, in lieu of complying with a maximum first lien net leverage ratio of 4.50 to 1.00, to comply with a maximum first lien gross leverage ratio of 6.00 to 1.00 for the fiscal quarter ending June 30, 2020, 7.50 to 1.00 for the fiscal quarter ending September 30, 2020, 8.00 to 1.00 for the fiscal quarter ending December 31, 2020 and 7.50 to 1.00 for the fiscal quarter ending March 31, ~~2018, income~~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 of 4.25 to 1.00.

On May 7, 2020, the Company amended its existing senior credit facilities to increase the borrowing capacity of its revolving credit facility from ~~operations included $0.3~~$385 million to $400 million. Refer to Item 5 of ~~expenses related to a secondary offering, which have been allocated to the full service center-based child care segment.~~this Quarterly Report on Form 10-Q for additional information on this amendment.

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, ~~prospects,~~the impact of COVID-19 on our near term or longer term operations, our expectations about center closures and timing of center re-openings, our reductions in discretionary spending and cost-saving initiatives, labor costs, government mandates, our growth, strategies, the industries in which we and our partners operate, demand for services, the impact of accounting principles, pronouncements and policies, ~~including, but not limited to, the new revenue recognition and lease standards,~~statements regarding acquisitions and the subsequent integration and expected synergies, our fair value estimates, goodwill from business combinations, the vesting of Company equity, 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 ~~benefit,~~benefits, estimates and adjustments, ~~timing to complete tax accounting,~~ amortization expense, the impact of foreign currency exchange rates, our credit risk, the impact of seasonality on results of operations, our share repurchase program, the outcome of litigation, legal proceedings and our insurance coverage, debt securities, our interest rate swap, interest rates and projections, interest expense, the use of derivatives or other market risk sensitive instruments, our indebtedness, borrowings under our senior credit facility and revolving credit facility, 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 ~~and complete share repurchases~~ with cash and cash equivalents and borrowings, and our ability to meet financial obligations and comply with covenants of our senior credit facility.

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 included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019, as well as the risks listed in Part II, Item 1A, “Risk Factors,” of this Quarterly Report, and other factors disclosed from time to time in our other ~~public~~ filings with the Securities and Exchange Commission.

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.

Introduction, Overview and ~~Overview~~COVID-19 Update

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, ~~2019,~~2020, as compared to the three months ended March 31, ~~2018.~~2019. 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 of the Company and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

We are a leading provider of high-quality child care and early education, ~~as well as other~~dependent care and workforce education services that are designed to help employers ~~families~~ and ~~adult learners~~their employees better ~~address the challenges of~~integrate work and family ~~life. We are organized into three~~life, as well as to grow their careers. Our operating and reporting ~~segments:~~segments are comprised of full service center-based child care, back-up care, and educational advisory services.

We provide services primarily under multi-year contracts with employers who offer child care, ~~as well as other dependent~~back-up care, ~~solutions~~ and educational advisory services as part of their employee benefits packages in an effort to support employees across life and career stages and improve employee engagement, productivity, recruitment and retention. As of March 31, ~~2019,~~2020, we had more than ~~1,100~~1,200 client relationships with employers across a diverse array of industries, including more than ~~150~~175 Fortune 500 companies and more than 80 of Working Mother magazine’s ~~2018~~2019 “100 Best Companies.” At March 31, ~~2019,~~2020, we operated ~~1,079~~1,094 child care and early education centers, compared to ~~1,051~~1,079 centers at March 31, ~~2018,~~2019, and had the capacity to serve approximately 120,000 children and their families in the United States, as well as in the United Kingdom, the Netherlands, Canada and India.

In March 2020, we began to experience the impact of the COVID-19 pandemic on our business, which has now substantially disrupted our global operations. Our ~~business~~primary focus and attention is ~~subject~~on the well-being, health and safety of the children and families we serve, along with the teachers and staff at our centers. Our services continue to ~~seasonal and quarterly fluctuations. Demand for child~~be critically important to first responders, scientists, health care and ~~early education~~medical professionals, and ~~elementary school services has historically decreased during~~other essential workers, as well as the ~~summer months when school is not in session, at which time families~~many support industries facilitating their work, all of whom are ~~often on vacation or have alternative child care arrangements.~~working tirelessly to respond to COVID-19. In addition, our enrollment declines as older children transition to elementary schools. Demand for our services generally increases in September and October coinciding with the beginning of the new school year and remains relatively stable throughout the rest of the school year. In addition, use of our back-up care services tends to be higher when schools are not in session and during holiday periods, which can increase the operating costs of the program and impact the results of operations. Our educational advisory services have limited seasonal fluctuations. Results of operations may also fluctuate from quarter to quartermid-March, as a result of ~~among other things,~~ the ~~performance~~required business and school closures and shelter-in-place government mandates in response to the pandemic, we began the temporary closure of ~~existing~~a significant portion of our child care centers, while continuing to operate critical health care client and “hub” centers to provide care and support services to the children whose parents are working on the front lines of the response. As of March 31, 2020, approximately 250 of our child care centers remained open globally after the temporary center closures. These open centers are operating with special COVID-19 protocols in place in order to protect the health and safety of the children and staff, including ~~enrollment~~social distancing procedures for pick-up and ~~staffing fluctuations,~~drop-off, daily health checks, the ~~number~~use of face masks by our staff, limited capacity, and ~~timing~~enhanced hygiene and cleaning practices. The status of ~~new center openings, acquisitions~~our operations is as follows:

•

United States: We are operating approximately 150 centers, most of which are employer-sponsored centers, and have temporarily closed approximately 570 centers. We are continuously monitoring guidance and taking direction from medical experts, the Centers for Disease Control and Prevention (“CDC”) and local, state and federal government authorities in order to determine the timing and cadence of re-opening our temporarily closed centers.


•	United Kingdom:We are operating approximately 35 centers, and have temporarily closed approximately 280 centers. We are continuously monitoring guidance from the U.K. health authorities in order to determine the timing and cadence of re-opening our temporarily closed centers.

•

Netherlands: We operate approximately 60 centers in the Netherlands which have remained operational under the Dutch government mandate that requires nurseries to remain open to serve the children of parents who work in vital professions, such as health care or emergency services. On April 21, 2020, the Dutch government announced updated protocols to begin re-opening their economy, specifically announcing that schools will begin to re-open May 11, and we expect that centers will be open to all families as of that date.


•	Back-up Care and Educational Advisory: Our back-up care and educational advisory segments currently remain operational and available for our clients and their employees.

This is a fluid and ~~management transitions,~~continuously changing environment. The broad effects of COVID-19, its duration and full impact to our operations are difficult to predict, due in large part to the interdependence of our operations with the operating decisions and requirements of our client partners, as well as social distancing guidelines and government mandates for continued school and business closures that impact the timing and cadence of ~~new client launches~~center re-openings. Therefore, the negative financial impact to our results and future financial or operational performance cannot be reasonably estimated. Based on the current guidance and directives of state and local health authorities, in conjunction with recommendations from medical experts and the CDC, the temporary closure of a significant portion of our centers is expected to continue in the second quarter of 2020 and, potentially, in subsequent periods. The timing and cadence of re-opening our temporarily closed centers will vary by jurisdiction and other factors and we cannot anticipate when the majority of our centers will re-open and there is no assurance that centers currently open will continue to fully operate. While we have recently experienced increased demand for back-up care services and minimal disruption to providing educational advisory services, these conditions and trends may not continue in subsequent periods. Given these factors, we expect the ~~length~~effects of ~~time required~~COVID-19 to our business to continue to adversely impact our results of operations in the second quarter of 2020, and potentially in subsequent periods.

In response to these developments, we have implemented measures in an effort to manage costs and improve liquidity and access to financial resources, and thereby mitigate the impact on our financial position and operations. These measures include, but are not limited to, the following:

furloughing a significant portion of our employees in proportion to the number of center closures, including center personnel for ~~new~~temporarily closed centers and related support functions in our corporate offices;

reducing discretionary spending and overhead costs, while prioritizing investments that support current operations and deferring to ~~achieve profitability, center closings, refurbishment or relocation,~~future periods nonessential and discretionary investments;

temporary voluntary reductions in compensation to certain executive officers and board members;

temporary suspension of share repurchases;

amending our credit agreement in April 2020 and May 2020 to increase the ~~contract~~borrowing capacity of our revolving credit facility from $225 million to $400 million; and,

raising $250 million in gross proceeds from the issuance and sale of common stock in April 2020.

We will continue to work with our local teams on the operational decisions and prudently managing our spending to support the current operations, while preparing for the re-opening of our centers. These challenging times highlight our crisis management abilities, our critical role in the business continuity plans of our client partners, and the value that our unique service offering provides to the families and clients we serve. We remain confident in our business model, ~~mix (profit~~the strength of our client partnerships, and ~~loss versus cost-plus)~~our ability to respond to changing market conditions. Refer to Note 1, Organization and Basis of ~~new and existing centers,~~Presentation, in our condensed consolidated financial statements for additional information on the ~~timing and level~~impact of ~~sponsorship payments, competitive factors and general economic conditions.~~COVID-19 to our business.

Results of Operations

The following table sets forth statement of income data as a percentage of revenue for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (in thousands, except percentages):


	Three Months Ended March 31,										Three Months Ended March 31,
	2019			%		2018			%		2020			%		2019			%
Revenue	$	501,758		100.0	%	$	463,657		100.0	%	$	506,323		100.0	%	$	501,758		100.0	%
Cost of services	374,811			74.7	%	350,113			75.5	%	397,464			78.5	%	374,811			74.7	%
Gross profit	126,947			25.3	%	113,544			24.5	%	108,859			21.5	%	126,947			25.3	%
Selling, general and administrative expenses	55,875			11.1	%	50,212			10.8	%	57,369			11.4	%	55,875			11.1	%
Amortization of intangible assets	8,162			1.6	%	8,048			1.8	%	8,209			1.6	%	8,162			1.6	%
Income from operations	62,910			12.6	%	55,284			11.9	%	43,281			8.5	%	62,910			12.6	%
Interest expense — net	(11,948		)	(2.4	)%	(11,503		)	(2.5	)%	(10,206		)	(2.0	)%	(11,948		)	(2.4	)%
Income before income tax	50,962			10.2	%	43,781			9.4	%	33,075			6.5	%	50,962			10.2	%
Income tax expense	(8,920		)	(1.8	)%	(6,483		)	(1.4	)%	(2,343		)	(0.4	)%	(8,920		)	(1.8	)%
Net income	$	42,042		8.4	%	$	37,298		8.0	%	$	30,732		6.1	%	$	42,042		8.4	%

Adjusted EBITDA ⁽¹⁾	$	93,838		18.7	%	$	83,194		17.9	%	$	81,458		16.1	%	$	93,838		18.7	%
Adjusted income from operations ⁽¹⁾	$	63,343		12.6	%	$	55,612		12.0	%	$	48,954		9.7	%	$	63,343		12.6	%
Adjusted net income ⁽¹⁾	$	47,812		9.5	%	$	42,580		9.2	%	$	43,646		8.6	%	$	47,812		9.5	%


(1)	Adjusted EBITDA, adjusted income from operations and adjusted net income are non-GAAP measures, which are reconciled to net income below under “Non-GAAP Financial Measures and Reconciliation.”

Three Months Ended March 31, ~~2019~~2020 Compared to the Three Months Ended March 31, ~~2018~~2019

Revenue. Revenue increased ~~$38.1~~$4.6 million, or 8%1%, to ~~$501.8~~$506.3 million for the three months ended March 31, ~~2019~~2020 from ~~$463.7~~$501.8 million for the same period in ~~2018.~~2019. Revenue growth is primarily attributable to contributions from new and ramping child care and early education centers, expanded sales and utilization of our back-up care ~~services~~ and educational advisory services, ~~and~~ typical annual tuition and price increases in the range of 3% to 4%., and contributions from acquisitions completed since the first quarter of 2019. The increases were offset by a decrease in tuition revenue in our full service child care centers as we began the temporary closure of a significant portion centers in March 2020 as a result of required school and business closures and shelter-in-place mandates in response to the COVID-19 pandemic. Revenue generated by the full service center-based child care segment in the three months ended March 31, ~~2019 increased~~2020 decreased by ~~$25.7~~$6.9 million, or 7%2%, when compared to the same period in ~~2018,~~2019, due to the decrease in ~~part~~tuitions from the temporary closure of centers and related tuition credits given to ~~overall enrollment increases of approximately 6%, partially offset by~~parents and, to a lesser extent, the effect of lower foreign currency exchange rates for our United Kingdom and Netherlands operations, which ~~had the effect of decreasing~~decreased revenue in the full service center-based child care segment by approximately 2%1% during the three months ended March 31, ~~2019.~~2020. We expect to see the negative financial impact of the COVID-19 related center closures to be more pronounced in the second quarter of 2020 with full service revenue contracting in line with center closures, compared to the partial quarter impact in the first quarter of 2020.

Revenue generated by the back-up care segment in the three months ended March 31, ~~2019~~2020 increased by ~~$10.0~~$9.5 million, or ~~18%~~15%, when compared to the same period in ~~2018.~~2019. Revenue growth in the back-up care segment is primarily attributable to expanded sales and increased utilization due in part to increased demand for our back-up care services (in-home care and reimbursed self-sourced care) as clients and families seek additional supports as a ~~recent acquisition.~~result of business and school closures. There is no assurance that the increased demand will continue as businesses and schools re-open. Additionally, revenue generated by educational advisory services in the three months ended March 31, ~~2019~~2020 increased by ~~$2.4~~$2.0 million, or ~~15%~~11%, when compared to the same period in the prior year. Revenue growth in the educational advisory services segment is primarily attributable to expanded ~~sales.~~sales, increased utilization and contributions from an acquisition completed in the fourth quarter of 2019.

Cost of Services. Cost of services increased ~~$24.7~~$22.7 million, or 7%6%, to ~~$374.8~~$397.5 million for the three months ended March 31, ~~2019~~2020 from ~~$350.1~~$374.8 million for the same period in ~~2018.~~2019. Cost of services in the full service center-based child care segment increased ~~$18.9~~$18.1 million, or 6%, to ~~$328.4~~$346.5 million in the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018.~~2019. Personnel costs, which typically represent approximately 70% of total cost of services for this segment, increased 6% as a result of the enrollment growth at new and existing centers prior to the temporary center closures, routine wage and benefit cost increases, and labor costs associated with centers we have added since March 31, ~~2018~~2019 that are in the ramping stage. ~~In addition, program~~While we temporarily closed a significant portion of our centers beginning in March 2020, we did not see a reduction in personnel costs during the quarter as we continued to pay our staff during the transition notice period of approximately two-weeks prior to their eligibility for unemployment insurance and other benefits. We expect to see a decrease in labor costs in the second quarter as a result of these temporary closures. Program supplies, materials, food and facilities costs, which typically represent approximately 30% of total costs of services for this segment, increased 7%4% in connection with the enrollment growth prior to the temporary center closures, certain technology expenses for programs and services, ~~and~~ the incremental occupancy costs associated with centers that have been added since March 31, ~~2018.~~2019, partially offset by the effects of lower variable costs as a result of the temporary center closures. In addition, facilities costs include $5.0 million in impairment costs for long-lived assets incurred as a result of the impact of COVID-19 on operations. Cost of services in the back-up care segment increased ~~$4.4~~$2.8 million, or ~~13%~~8%, to ~~$37.3~~$40.1 million in the three months ended March 31, ~~2019,~~2020, primarily due to personnel and increased care provider fees associated with the services provided to the expanding customer base and increased utilization, as well as marketing and technology spending which supports our customer user experience, service delivery and operating efficiency. Cost of services in the educational advisory services segment increased ~~$1.4~~$1.8 million, or ~~18%~~20%, to ~~$9.1~~$10.9 million in the three months ended March 31, ~~2019~~2020 due to personnel ~~and technology~~ costs related to delivering services to the expanding customer ~~base, as well as ongoing spending for systems to support the long-term growth of the segment.~~base.

Gross Profit. Gross profit ~~increased $13.4~~decreased $18.0 million, or ~~12%~~14%, to ~~$126.9~~$108.9 million for the three months ended March 31, ~~2019~~2020 from ~~$113.5~~$126.9 million for the same period in ~~2018.~~2019. Gross profit margin as a percentage of revenue was ~~25%~~22% for the three months ended March 31, ~~2019, an increase of~~2020, and decreased approximately ~~1% compared to~~4% from the three months ended March 31, ~~2018.~~2019. The ~~increase in gross profit~~decrease is primarily due to ~~contributions~~reduced margins in the full service center-based child care segment from ~~new and acquired~~the temporary closure of centers ~~increased enrollment~~as well as related impairment charges on long-lived assets, partially offset by increases in ~~our mature and ramping~~gross profit ~~and loss centers, effective operating cost management, and~~from expanded back-up care ~~and educational advisory~~ services.

Selling, General and Administrative Expenses (“SGA”). SGA increased ~~$5.7~~$1.5 million, or ~~11%~~3%, to ~~$55.9~~$57.4 million for the three months ended March 31, ~~2019~~2020 compared to ~~$50.2~~$55.9 million for the same period in ~~2018.~~2019. SGA was 11% of revenue for the three months ended March 31, ~~2019,~~2020, which is consistent with the same period in ~~2018.~~2019. SGA increased over the comparable ~~2018~~2019 period primarily due to increases in personnel costs, including annual wage ~~increases, and continued technology spending.~~increases.

~~Amortization.~~Amortization of Intangible Assets. Amortization expense on intangible assets ofwas $8.2 million for the three months ended March 31, ~~2019, increased from $8.0 million for~~2020, which is consistent with the three months ended March 31, ~~2018,~~2019, due to increases from the acquisitions completed in ~~2018~~2019 and ~~2019, partially~~2020, offset by decreases from certain intangibles becoming fully amortized during the period.

Income from Operations. Income from operations ~~increased~~decreased by ~~$7.6~~$19.6 million, to ~~$62.9~~$43.3 million for the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018.~~2019. Income from operations was ~~13%~~9% of revenue for the three months ended March 31, ~~2019, which is an increase from 12% in~~2020, compared to 13% for the three months ended March 31, ~~2018.~~2019. The ~~change~~decrease in income from operations was due to the following:

Income from operations for the full service center-based child care segment ~~increased $4.6~~decreased $24.8 million, or ~~13%~~60%, in the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018. The increase was~~2019 due to ~~tuition increases~~reduced margins from the temporary center closures beginning in March 2020 as well as related impairment charges on long-lived assets of $5.0 million, and ~~enrollment gains over the prior year, contributions from new centers that have been added since March 31, 2018, and effective cost management, partially offset by the~~ costs incurred during the pre-opening and ramp-up of certain new lease/consortium centers opened during ~~2018~~2019 and ~~2019,~~2020. These reductions were partially offset by tuition increases and enrollment gains over the ~~incremental costs associated with technology spending in our~~prior year prior to the temporary center closures, and contributions from new centers and the effect of lower foreign currency exchange rates for our United Kingdom an Netherlands operations, which had the effect of decreasing revenue in the full service segment by approximately 2% during the three months endedthat have been added since March 31, 2019.

Income from operations for the back-up care segment increased ~~$3.0~~$5.1 million, or ~~21%~~30%, in the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018~~2019 due to the expanding revenue base from increased sales and ~~a decrease in amortization expense from certain intangibles becoming fully amortized,~~utilization, partially offset by increased care provider fees associated with the incremental revenue, and spending for technology to support our customer user experience, service delivery and operating ~~efficiency, and increased care provider fees associated with the incremental revenue.~~efficiency.

Income from operations for the educational advisory services segment ~~for~~increased 1% in the three months ended March 31, ~~2019 remained consistent~~2020 when compared with the same period in ~~2018 as~~2019 due to contributions from the expanding revenue ~~base were offset by ongoing spending for personnel and systems to support the long-term development and growth in this segment.~~

base.

Net Interest Expense. Net interest expense ~~increased~~decreased to ~~$11.9~~$10.2 million for the three months ended March 31, ~~2019~~2020 from ~~$11.5~~$11.9 million for the same period in ~~2018. The increase in interest expense relates~~2019, due to ~~increased average~~decreased borrowings ~~under~~on our revolving credit facility as well as ~~increases~~decreases in the applicable interest rates. Including the effects of the interest rate swap arrangements, the weighted average interest ~~rate~~rates for the term loans and revolving credit facility ~~was~~were 3.5% and 4.0% ~~and 3.7%~~ for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Based on our current projections of interest rates, we estimate that our overall weighted average interest rate will approximate ~~4.0% to 4.5%~~3.0% for the remainder of ~~2019.~~2020.

Income Tax Expense. We recorded income tax expense of $2.3 million during the three months ended March 31, 2020, at an effective income tax rate of 7%, compared to income tax expense of $8.9 million during the three months ended March 31, 2019, at an effective income tax rate of 18%~~, compared to income tax expense of $6.5 million during~~. For the three months ended March 31, ~~2018, at an~~2020, our annual effective ~~income~~ tax rate was highly sensitive to change in estimates of ~~15%.~~total ordinary income (or loss), and therefore a reliable estimate could not be made. Accordingly, the actual effective tax rate for the year-to-date period has been used. The difference inbetween the effective income tax rates as compared to the statutory income tax rates is primarily due to the effects of ~~including the~~ excess tax benefits associated with the exercise of stock options and vesting of restricted ~~stock as a reduction of income tax expense.~~stock. During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the excess tax ~~benefit decreased~~benefits reduced income tax expense by ~~$4.6~~$6.9 million and ~~$5.5~~$4.6 million, respectively. The effective income tax rate would have approximated ~~26%~~28% and ~~28%~~26% for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, prior to the inclusion of the excess tax ~~benefit~~benefits from stock-based compensation.

Based upon our current estimates of projected excess tax benefits from the exercise of stock options and vesting of restricted stock, we expect the annual effective income tax rate in 2019 to approximate 22% to 24%. These estimates could be impacted by the activity and timing of equity transactions and by the mix of international earnings.

Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA and adjusted income from operations ~~increased $10.6~~decreased $12.4 million, or 13%, and ~~$7.7~~$14.4 million, or ~~14%~~23%, respectively, for the three months ended March 31, ~~2019~~2020 over the comparable period in ~~2018~~2019 primarily as a result of the ~~increase~~decrease in gross profit ~~due to additional contributions from full-service centers, including~~in the ~~impact of new and acquired centers, as well as the growth in back-up~~full service center-based child care ~~and educational advisory services.~~segment.

Adjusted Net Income. Adjusted net income ~~increased $5.2~~decreased $4.2 million, or ~~12%~~9%, for the three months ended March 31, ~~2019~~2020 when compared to the same period in ~~2018,~~2019, primarily due to the ~~expanded~~decrease in income from ~~operations.~~operations, partially offset by a lower effective tax rate.

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 generally accepted accounting principles in the United States (“GAAP” or “U.S. 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 (in thousands, except share data):


	Three Months Ended March 31, 2019						Three Months Ended March 31,
	2019			2018			2020			2019
Net income	$	42,042		$	37,298		$	30,732		$	42,042
Interest expense — net	11,948			11,503			10,206			11,948
Income tax expense	8,920			6,483			2,343			8,920
Depreciation	18,300			16,635			20,012			18,300
Amortization of intangible assets^(a)	8,162			8,048			8,209			8,162
EBITDA	89,372			79,967			71,502			89,372
Additional Adjustments:
Non-cash operating lease expense ^(b)	927			8			—			927
Stock-based compensation expense ^(c)	3,106			2,891			4,283			3,106
Transaction costs ^(d)	433			328
Other costs ^(d)							703			433
COVID-19 related costs ^(f)							4,970			—
Total adjustments	4,466			3,227			9,956			4,466
Adjusted EBITDA	$	93,838		$	83,194		$	81,458		$	93,838

Income from operations	$	62,910		$	55,284		$	43,281		$	62,910
Transaction costs ^(d)	433			328
Other costs ^(d)							703			433
COVID-19 related costs ^(f)							4,970			—
Adjusted income from operations	$	63,343		$	55,612		$	48,954		$	63,343

Net income	$	42,042		$	37,298		$	30,732		$	42,042
Income tax expense	8,920			6,483			2,343			8,920
Income before income tax	50,962			43,781			33,075			50,962
Stock-based compensation expense ^(c)	3,106			2,891			4,283			3,106
Amortization of intangible assets ^(a)	8,162			8,048			8,209			8,162
Transaction costs ^(d)	433			328
Other costs ^(d)							703			433
COVID-19 related costs ^(f)							4,970			—
Adjusted income before income tax	62,663			55,048			51,240			62,663
Adjusted income tax expense ^(e)	(14,851		)	(12,468		)	(7,594		)	(14,851		)
Adjusted net income	$	47,812		$	42,580		$	43,646		$	47,812

Weighted average number of common shares — diluted	58,752,384			59,448,031
Weighted average common shares outstanding — diluted							58,878,784			58,752,384
Diluted adjusted earnings per common share	$	0.81		$	0.72		$	0.74		$	0.81


(a)	Represents amortization of intangible assets, including $5.0 million and $4.7 million for ~~both~~ the three months ended March 31, 2020 and 2019, ~~and 2018,~~respectively, associated with intangible assets recorded in connection with our going private transaction in May 2008.


(b)	Represents ~~non-cash operating~~the excess of lease expense ~~in accordance with Accounting Standards Codification Topic 842,~~ ~~Leases,~~ ~~in 2019, and Topic 840,~~ ~~Leases,~~ ~~in 2018.~~ over cash lease expense (for periods prior to 2020).


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

(d)

~~Represents~~Other costs in the three months ended March 31, 2020 relate to occupancy costs incurred for our new corporate headquarters during the construction period, which represent duplicative corporate office costs in 2020 while we also continue to carry the costs for our existing corporate headquarters. Other costs in the three months ended March 31, 2019 relate to transaction costs incurred in connection with completed ~~acquisitions and the March 2018 secondary offering.~~acquisitions.

(e)

Represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately ~~24%~~15% and ~~23%~~24% for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The tax rate for ~~2019~~2020 represents a tax rate of approximately 27% applied to the expected adjusted income before income tax, ~~for the full year,~~ less the estimated effect of ~~additional~~ excess tax benefits related to equity ~~transactions~~transactions. However, the jurisdictional mix of the expected adjusted income before income tax for the full year, ~~2019, which the Company estimates will be in the range of $7 million to $10 million. However,~~and the timing and volume ~~and~~of the tax benefits associated with such future equity activity will affect these estimates and the estimated effective tax rate for the year.


(f)	Represents impairment costs for long-lived assets incurred as a result of the impact of COVID-19 on our operations.

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. 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, the excess of lease expense over cash lease expense ~~and~~(prior to fiscal 2020), stock-based compensation expense, impairment costs, and transaction costs and other nonrecurring costs, such as ~~well as the expenses related to secondary offerings, debt financing transaction expenses, dispositions and acquisitions.~~duplicative corporate office 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 ~~income tax,~~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 not be evaluated in isolation or supplant comparable GAAP measures, but rather, 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. ~~The Company understands~~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 ~~the Company’s~~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, ~~the Company’s~~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;

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

The COVID-19 pandemic has substantially disrupted our global operations and we are in a fluid and continuously changing environment. The broad effects of COVID-19, its duration and full impact to our operations are difficult to predict, due in large part to the interdependence of our operations with the operating decisions and requirements of our client partners, as well as social distancing guidelines and government mandates for continued school and business closures that impact the timing and cadence of center re-openings. As a result, we have taken a number of actions described below to increase our liquidity and strengthen our financial position as we navigate these uncertain times.

Our primary cash requirements are for the ongoing operations of our existing child care centers, back-up care and educational advisory services, ~~the addition of new centers through development or acquisition,~~ 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. Our revolving credit facility is part of our $1.3 billion senior secured credit facilities, which consist of a $1.1 billion secured term loan facility and a $225 million revolving credit facility. ~~Borrowings~~There were no borrowings outstanding on our revolving credit facility at March 31, ~~2019~~2020 and December 31, ~~2018 were $50.2~~2019. In April and May 2020, we amended our existing senior credit facilities to, among other changes, increase the borrowing capacity of our revolving credit facility by $175 million, to a total of $400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and ~~$118.2 million, respectively.~~modify the terms of the applicable covenants. Refer to Note 12, Subsequent Events, in our condensed consolidated financial statements for additional information on the amendments to our credit agreement.

We had ~~$20.1~~$49.2 million in cash ($55.4 million including restricted cash) at March 31, 2020, of which $27.1 million was held in foreign jurisdictions, compared to $27.9 million in cash ($31.2 million including restricted cash) at December 31, 2019, of which ~~$15.6~~$14.2 million was held in foreign jurisdictions. Operations outside of North America accounted for 23% of ~~the Company’s~~our consolidated revenue for both the three months ended March 31, 2020 and 2019. The net impact on our liquidity from changes in foreign currency exchange rates was not material for the three months ended March 31, 2020 and 2019, and ~~2018, and the Company does~~we do not currently expect that the effects of changes in foreign currency exchange rates will have a material net impact on ~~the Company’s~~our liquidity, capital resources or results from operations for the remainder of ~~2019.~~2020.

On April 21, 2020, we issued and sold 2,138,580 shares of unregistered common stock to Durable Capital Master Fund LP at a price of $116.90 per share. We received gross proceeds from the offering of $250 million, which further strengthens our liquidity and financial position.

We had a working capital deficit of ~~$326.6~~$213.0 million and ~~$289.9~~$254.4 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Our working capital deficit has primarily arisen from using cash generated from operations to make long-term investments in fixed assets and acquisitions, and from share repurchases. We anticipate that ~~we will continue to generate positive~~our cash flows from operating activities ~~and that the cash generated~~ will be ~~used principally to fund ongoing operations~~adversely impacted at least during the closure of our ~~new and~~centers, which will be supplemented with our existing ~~full service child care centers and expanded operations in~~cash, cash proceeds from the ~~back-up care and educational advisory segments,~~April 2020 sale of common stock, as well as borrowings available under our revolving credit facility to ~~make scheduled~~fund operations. As we prepare to re-open our temporarily closed centers in the coming months, we will continue to reduce our discretionary operating and capital spending and prioritize investments that support current operations, as well as our principal and interest payments on ~~debt and for share repurchases.~~

~~The Company adopted Accounting Standards Codification No. 842,~~ ~~Leases (ASC 842)~~, effective January 1, 2019. Upon adoption, the Company recognized operating lease right-of-use assets, as well as the related short-term and long-term liabilities, for the rights and obligations created by leases with lease terms longer than twelve months. The Company's working capital deficit increased as a result of the adoption due to the additional short-term liabilities recorded. The Company adopted ASC 842 using the modified retrospective method, electing to use the effective date as the date of initial application. Therefore, comparative information for prior periods has not been adjusted. Please refer to the recently adopted pronouncement section of Note 1, ~~Organization and Basis of Presentation, and Note 3,~~ ~~Leases, in~~ our ~~condensed consolidated financial statements for further discussion of the adoption of the new lease standard.~~debt.

The board of directors ~~of the Company~~ authorized a share repurchase program of up to $300 million of ~~the Company’s~~our outstanding common stock, effective June 12, 2018. ~~There were no share repurchases during~~During the three months ended March 31, ~~2019~~2020, we repurchased 231,313 shares for $32.2 million, and at March 31, ~~2019, $259.0~~2020, $194.9 million remained available under the repurchase program. All repurchased shares have been retired. At this time, we have temporarily suspended share repurchases as we prioritize investments to the most critical operating areas.

We believe that funds provided by operations, our existing cash balances, the proceeds from the April 2020 common stock issuance, and borrowings available under our revolving credit facility will be adequate to ~~meet planned operating~~fund all obligations and ~~capital expenditures~~liquidity requirements for at least the next ~~12 months under current operating conditions.~~twelve months. However, ~~if we were~~prolonged disruptions to ~~undertake any significant acquisitions or investments in the purchase~~our operations as a result of ~~facilities for new or existing~~continued required school, child care and ~~early education centers, which requires~~business closures and shelter-in-place government mandates in response to the COVID-19 pandemic, may require financing beyond our existing cash and borrowing capacity, and it may be necessary for us to obtain additional debt or equity financing. We may not be able to obtain such financing on reasonable ~~terms, or at all.~~terms.


Cash Flows	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
	(In thousands)						(In thousands)
Net cash provided by operating activities	$	107,013		$	105,848		$	64,083		$	107,013
Net cash used in investing activities	$	(60,562	)	$	(29,483	)	$	(12,964	)	$	(60,562	)
Net cash used in financing activities	$	(62,263	)	$	(79,601	)	$	(25,703	)	$	(62,263	)
Cash, cash equivalents and restricted cash — beginning of period	$	38,478		$	36,570		$	31,192		$	38,478
Cash, cash equivalents and restricted cash — end of period	$	23,214		$	33,765		$	55,405		$	23,214

Cash Provided by Operating Activities

Cash provided by operating activities was ~~$107.0~~$64.1 million for the three months ended March 31, ~~2019,~~2020, compared to ~~$105.8~~$107.0 million for the same period in ~~2018.~~2019. The ~~increase~~decrease in cash provided by operating activities primarily resulted from ~~increases~~the $11.3 million decrease in net income ~~partially offset by~~from the prior year, and from changes in working capital arising from the timing of billings and payments when compared to the prior year.

Cash Used in Investing Activities

Cash used in investing activities was ~~$60.6~~$13.0 million for the three months ended March 31, ~~2019~~2020 compared to ~~$29.5~~$60.6 million for the same period in ~~2018~~2019 and was related to fixed asset additions, acquisitions, and ~~to investments in debt securities and fixed assets.~~other investments. The ~~increase~~decrease in cash used in investing activities was primarily related to a lower volume of fixed asset additions and acquisitions in 2020 as we prioritize investments to the ~~purchase~~most critical operating areas as we navigate the impact and response to the COVID-19 pandemic, and a nonrecurring investment of $19.8 million in debt securities in 2019, which were purchased by our wholly-owned captive insurance company using restricted ~~cash, as well as an increase~~cash. During the three months ended March 31, 2020, we invested $12.6 million, net of proceeds from the sale of fixed assets, in fixed asset ~~additions~~purchases for new child care centers, maintenance and refurbishments in our existing centers, ~~and continued investments~~compared to a net investment of $21.1 million in ~~technology, equipment and furnishings. In~~ the ~~three months ended March 31, 2019, the Company also~~prior year. We used ~~$19.5~~$3.5 million to acquire one ~~back-up care provider and one~~ center ~~compared to $16.7 million used to acquire ten centers~~ in the three months ended March 31, ~~2018.~~

2020, compared to $19.5 million used to acquire a provider of back-up care and one center in the three months ended March 31, 2019. These uses of cash during the three months ended March 31, 2020 were partially offset by $3.2 million in restricted cash proceeds generated from the maturity of debt securities held by our wholly-owned captive insurance company.

Cash Used in Financing Activities

~~The Company~~We used ~~$62.3~~$25.7 million in financing activities in the three months ended March 31, ~~2019~~2020 compared to ~~$79.6~~$62.3 million for the same period in ~~2018.~~2019. Cash used in financing activities for the three months ended March 31, ~~2019~~2020 was primarily for repayments of $68.2 million, net of borrowings, on the revolving credit facility, payments of debt principal of $2.7 million, and taxes paid related to the net share settlement of stock awards totaling $2.8 million. These uses of cash were offset by proceeds primarily from the exercise of stock options of $7.8 million, and from the issuance and sale of restricted stock of $3.6 million. Cash used in financing activities for the three months ended March 31, 2018 consisted principally of share repurchases of ~~$85.7~~$32.7 million, taxes paid related to the net share settlement of stock awards totaling ~~$3.2~~$5.2 million and payments of debt principal of $2.7 million. These uses of cash were partially offset by proceeds from the exercise of stock options ~~of $7.8 million,~~ and ~~from~~ the issuance and sale of restricted stock of ~~$4.5~~$16.0 million. Cash used in financing activities for the three months ended March 31, 2019 consisted primarily of repayments of $68.2 million, net of borrowings, on the revolving credit facility, taxes paid related to the net share settlement of stock awards totaling $2.8 million, and payments of debt principal of $2.7 million. These uses of cash were partially offset by proceeds from the exercise of stock options and the issuance and sale of restricted stock of $11.4 million.

Debt

As of March 31, ~~2019, the Company’s~~2020, our $1.3 billion senior secured credit facilities consisted of a $1.1 billion secured term loan facility and a $225 million revolving credit facility. The term loans mature on November 7, 2023 and require quarterly principal payments of $2.7 million, with the remaining principal balance due on November 7, 2023.

Outstanding term loan borrowings were as follows (in thousands):


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Term loans	$	1,053,500		$	1,056,188		$	1,042,750		$	1,045,438
Deferred financing costs and original issue discount	(8,086		)	(8,568		)	(6,156		)	(6,639		)
Total debt	1,045,414			1,047,620			1,036,594			1,038,799
Less current maturities	10,750			10,750			10,750			10,750
Long-term debt	$	1,034,664		$	1,036,870		$	1,025,844		$	1,028,049

~~Borrowings~~There were no borrowings outstanding on the revolving credit facility ~~were $50.2 million~~ at March 31, 2020 and December 31, 2019, with ~~$174.8 million of~~ the ~~revolving credit facility available for borrowings, and were $118.2 million at December 31, 2018, with $106.8 million of the revolving credit facility~~full line available for borrowings. The revolving credit facility matures on July 31, 2022. In April and May 2020, we amended our existing senior credit facilities to, among other changes, increase the borrowing capacity of our revolving credit facility by $175 million, to a total borrowing capacity of $400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants. Refer to Note 12, Subsequent Events, in our condensed consolidated financial statements for additional information on the amendments to our credit agreement.

Borrowings under the credit agreement are subject to variable ~~interest rates. The Company mitigates its~~interest. We mitigate our interest rate exposure with variable-to-fixed interest rate swap agreements with an underlying fixed notional amount of $500 million. These swap agreements, designated and accounted for as cash flow hedges from inception, are scheduled to mature on October 31, 2021. The weighted average interest rate for the term loans was 3.53% and 3.97% for the three months ended March 31, 2020 and 2019, respectively, including the impact of the interest rate swap agreements.

All obligations under the senior secured credit facilities are secured by substantially all the assets of ~~the Company’s~~our 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, our 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 our subsidiaries; alter the business conducted; enter into agreements restricting our 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., our direct subsidiary, to be a passive holding company, subject to certain exceptions. The revolving credit facility requires Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a maximum consolidated first lien net leverage ratio that is a quarterly maintenance based financial covenant. 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 ~~covenants~~covenant at March 31, ~~2019.~~2020 and, in connection with the April 2020 amendment to our credit agreement, have obtained amendments related to our future covenant requirements. Refer to Note 6, Credit Arrangements and Debt Obligations, and Note 12, Subsequent Events, in our condensed consolidated financial statements for additional information on our debt and credit ~~arrangements.~~arrangements and amendments to our credit agreement and financial covenant.

Off-Balance Sheet Arrangements

As of March 31, ~~2019,~~2020, 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”~~Operations,” in our Annual Report on Form 10-K for the year ended December 31, ~~2018. Other than changes to the accounting policy for leases as a result of the adoption of Accounting Standards Update No. 2016-02,~~ ~~Leases (Topic 842), there~~2019. There have been no material changes to our critical accounting policies since December 31, ~~2018. Please refer to Note 3,~~ ~~Leases, in our condensed consolidated financial statements for further discussion of the adoption of the new lease standard and our accounting policy.~~2019.

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. ~~During~~Other than the ~~three months ended March 31, 2019, our wholly-owned captive insurance entity purchased marketable debt securities with~~broad effects of the COVID-19 pandemic as a ~~fair value~~result of approximately $19.9 million, which were classified as available-for-sale. The Company's investments in debt securities consist of U.S. Treasury and U.S. government agency securities and carry a fixed coupon rate. A hypothetical increase in interest rates of 100 basis points would not have a material adverseits negative impact on the ~~fair value of our investment portfolio. Any unrealized gains or losses are recorded in accumulated other comprehensive loss~~global economy and ~~are realized only if we sold the underlying debt securities prior to maturity.~~

~~Other than the purchases of the marketable debt securities,~~major financial markets, there have been no material changes in ~~the Company's~~our exposure to interest rate or foreign currency exchange rate fluctuations since December 31, ~~2018.~~2019. 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, ~~2018~~2019 for further information regarding market risk. Refer to Note 12, Subsequent Events, in our condensed consolidated financial statements for additional information on recent amendments to our credit agreement.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of March 31, ~~2019, the Company~~2020, we conducted an evaluation under the supervision and with the participation of ~~the Company’s~~ management, including ~~the Company’s~~our Chief Executive Officer and Chief Financial Officer ~~(its~~(our principal executive officer and principal financial officer, respectively), regarding the effectiveness of the design and operation of ~~the Company’s~~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 ~~by the Company~~ in reports that we file or submit under the Exchange Act are 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 are 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, ~~2019.~~2020.

Changes in Internal Control over Financial Reporting

There have been no changes in ~~the Company’s~~our internal control over financial reporting that occurred during the quarter ended March 31, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting due to the ~~Company’s~~COVID-19 pandemic. We are continually monitoring and assessing its impact on the design, implementation and operating effectiveness of our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are, from time to time, subject to claims, suits and ~~suits~~matters arising in the ordinary course of business, some of which have not been fully adjudicated. Such claims have in the past generally been covered by insurance. We believe the resolution of such legal matters will not have a material adverse effect on our financial condition, results of operations or cash flows, although we cannot predict the ultimate outcome of any such actions. ~~There~~Furthermore, 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.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, which could adversely affect our business, financial condition and operating results. 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 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, ~~2018.~~2019, with the exception of the addition of the following risk factor:

The global COVID-19 pandemic has significantly disrupted our business and our financial condition and operating results and will continue to adversely impact our business.

The COVID-19 pandemic has disrupted our global operations as a result of required school and business closures and shelter-in-place mandates in response to the COVID-19 pandemic. We expect to continue to be impacted as the situation remains dynamic and subject to rapid and potentially material changes. As of March 31, 2020, we operated 1,094 child care and early education centers with the capacity to serve approximately 120,000 children and their families, of which approximately 250 child care centers with the capacity to serve approximately 32,000 children remained open after the temporary center closures in response to the COVID-19 pandemic. The continued or additional disruptions to our business and potential adverse impacts to our financial condition and results of operations resulting from the COVID-19 pandemic include, but are not limited to:

significant changes in the conditions of the markets we operate in, including required school and business closures and shelter-in-place mandates, limiting our ability to provide our services, especially center-based child care and center-based back-up child care;

reduced enrollment upon the re-opening of centers as families may limit their participation in various public activities and gatherings, including group child care, or as social distancing protocols and other licensing regulations may reduce group sizes or otherwise affect the overall capacity of children we can serve;

inability to hire and maintain an adequate level of center staff requiring us to reduce enrollment in order to comply with mandated ratios, inability to retain teachers after long periods of furlough, and the impact to our operations if a significant percentage of our workforce is unable to return to work because of illness, quarantine, worker absenteeism, limitations on travel, government or social distancing restrictions, which may have a disproportionate impact on our business compared to other companies that depend less on the in-person provision of services;

reduced or shifting demand for our services due to adverse and uncertain economic conditions, including as a result of clients that have been adversely impacted, and/or increased unemployment, continued school and business closures, long-term shift to an at-home workforce, and general effects of a broad-based economic recession;

potential incremental costs associated with mitigating the effects of the pandemic and/or additional procedures and protocols required to maintain health and safety at our centers;

a decrease in revenues due to clients requesting refunds or renegotiating contracts for reduced or changing services, including in our cost-plus and employer sponsor model centers;

the potential deterioration in the collectability of our existing accounts receivable and a decrease in the generation of new accounts receivable due to the potential diminished financial health of our clients;

inability to implement our growth strategies due to prolonged business contraction and reduced capital expenditures and cost-saving initiatives;

delayed re-opening of centers outside of our control due in large part to the interdependence of our operations with our client partners’ operating decisions and requirements as well as decisions by governmental authorities regarding school and business closures;

legal actions or proceedings related to COVID-19;

reduction in our liquidity position limiting our ability to service our indebtedness and our future ability to incur additional indebtedness or financing; and

further downgrades to our credit rating by ratings agencies which could reduce our ability to access capital markets.

These factors could place limitations on our ability to operate effectively and could have a material adverse effect on our operations, financial condition and operating results. As the situation continues to evolve and more information and guidance becomes available, we may adjust our current plans, policies and procedures to address the rapidly changing variables related to the pandemic. Additional impacts may arise of which we are currently not aware, the nature and extent of which will depend on future developments which are highly uncertain and cannot be predicted.

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 quarter ended March 31, ~~2019:~~2020:

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(In thousands) (1)
January 1, 2019 to January 31, 2019 ⁽²⁾
20,853
$ 112.56
—
$ 258,993
February 1, 2019 to February 28, 2019 ⁽²⁾
365
$ 123.10
—
$ 258,993
March 1, 2019 to March 31, 2019 —
$ —
—
$ 258,993
21,218
—



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, 2020 to January 31, 2020 ⁽²⁾	34,083	$	161.14	31,500	$	221,982
February 1, 2020 to February 29, 2020 ^{(2) (3)}	65,994	$	157.60	36,000	$	215,957
March 1, 2020 to March 31, 2020 ⁽³⁾	167,563	$	127.72	163,813	$	194,850
	267,640			231,313


(1)	The board of directors ~~of the Company~~ authorized a share repurchase program of up to $300 million of ~~the Company’s~~our outstanding common stock effective June 12, 2018. The share repurchase program has no expiration date. ~~There were no share repurchases during the three months ended March 31, 2019.~~All repurchased shares have been retired.

(2)

During the ~~three~~ months ~~ended March 31, 2019, the Company~~of January and February 2020, we retired a total of ~~21,218~~26,757 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 ~~withholding.~~withholdings. Shares retired in connection with the payment of tax withholding obligations are not included in, and are not counted against, ~~the Company’s~~our $300 million share repurchase authorization.

(3)

During February and March 2020, we repurchased 9,570 shares of unvested restricted stock awards that were subject to forfeiture resulting from the grantees’ termination of service with us for an aggregate $0.6 million pursuant to the certain restricted stock award agreements. The purchase price was equal to the purchase price paid by the grantees on the date of grant as provided in the restricted stock award agreements.

Item 3. Defaults Upon Senior Securities

~~Not applicable.~~None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~Not applicable.~~On May 7, 2020, Bright Horizons Family Solutions LLC (the “Borrower”), a wholly-owned indirect subsidiary of the Company, entered into a Fifth Amendment to Credit Agreement (the “Amendment”), by and among the Borrower, Bright Horizons Capital Corp., the Fifth Amendment Incremental Revolving Credit Lender, and JPMorgan Chase Bank, N.A., as Administrative Agent and L/C Issuer (each term as defined in the Amendment). The Amendment amends the Borrower’s Credit Agreement, dated as of January 30, 2013, by and among the Borrower, Bright Horizons Capital Corp., JPMorgan Chase Bank, N.A., as Administrative Agent and L/C Issuer, the Lenders and other parties party thereto from time to time (as amended and restated by the Incremental and Amendment and Restatement Agreement, dated as of November 7, 2016 and as further amended by the Amendment Agreement, dated as of May 8, 2017, the Amendment to Credit Agreement, dated as of November 30, 2017, the Third Amendment to Credit Agreement, dated as of May 31, 2018, and the Fourth Amendment to Credit Agreement, dated as of April 24, 2020, the “Credit Agreement”).

The Amendment amends the Credit Agreement to increase the revolving credit commitments under the Credit Agreement from $385,000,000 to $400,000,000. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, which is filed as Exhibit 10.5 to this Quarterly Report on Form 10-Q and is incorporated by reference into this Item 5.

Item 6. Exhibits

(a) Exhibits:



Exhibit Number		Exhibit Title
10.1*		~~Sub-Plan for U.K. Employees under 2012 Omnibus Long-Term Incentive Plan.~~Stock Purchase Agreement, dated as of April 19, 2020, by and between Bright Horizons Family Solutions Inc. and Durable Capital Master Fund LP.
10.2		Fourth Amendment to Credit Agreement, dated as of April 24, 2020, by and among Bright Horizons Family Solutions LLC, Bright Horizons Capital Corp., the Loan parties, the Lenders party thereto, the Fourth Amendment Incremental Revolving Credit Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 27, 2020).
10.3†		Amended and Restated Severance Agreement between Bright Horizons Family Solutions LLC and John Casagrande (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K, filed February 27, 2020).
10.4†		Severance Agreement between Bright Horizons Family Solutions LLC and Maribeth Bearfield (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K, filed February 27, 2020).
10.5*		Fifth Amendment to Credit Agreement, dated as of May 7, 2020, by and among Bright Horizons Family Solutions LLC, Bright Horizons Capital Corp., the Loan Parties, the Fifth Amendment Incremental Revolving Credit Lender party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and L/C Issuer.
31.1*		Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to ~~the~~ 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 ~~the~~ 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~~Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~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.
~~The XBRL instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.~~†	Management contract or compensatory plan.

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 ~~9, 2019~~11, 2020	By:	/s/ Elizabeth Boland
			Elizabeth Boland
			Chief Financial Officer
			(Duly Authorized Officer)

3234



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	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2930
Item 4.	Controls and Procedures	2930
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3031
Item 1A.	Risk Factors	3031
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3032
Item 3.	Defaults Upon Senior Securities	3032
Item 4.	Mine Safety Disclosures	3032
Item 5.	Other Information	3032
Item 6.	Exhibits	3133
Signatures		3234



	Three months ended March 31, 2019
Operating Cash Flows:
Cash paid for amounts included in the measurement of lease liabilities	$	30,034
Non-cash Transaction:
Operating right-of-use assets obtained in exchange for operating lease liabilities — net	$	24,496



	Operating Leases
2019	$	120,352
2020	114,628
2021	101,710
2022	95,529
2023	87,530
Thereafter	476,861
Total future minimum lease payments	$	996,610



	Three months ended March 31, 2019
Beginning balance of liabilities for contingent consideration	$	1,930
Issuance of contingent consideration in connection with acquisitions	16,375
Foreign currency translation	(105		)
Ending balance of liabilities for contingent consideration	$	18,200



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In thousands) (1)
January 1, 2019 to January 31, 2019 ⁽²⁾	20,853	$	112.56	—	$	258,993
February 1, 2019 to February 28, 2019 ⁽²⁾	365	$	123.10	—	$	258,993
March 1, 2019 to March 31, 2019	—	$	—	—	$	258,993
	21,218			—