KinderCare Learning Companies, Inc. 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 29, 2025


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

For the transition period from to

Commission File Number: 001-42367

KinderCare Learning Companies, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	87-1653366
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5005 Meadows Road Lake Oswego, OR	97035
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (503) 872-1300

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, par value $0.01 per share
 
     KLC
 
     New York Stock Exchange

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

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

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☐

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

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

As of May 9, 2025, the registrant had 118,006,326 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents


		Page

PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets (Unaudited)	2
	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	3
	Condensed Consolidated Statements of Shareholders' Equity (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II.	OTHER INFORMATION	35

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	37

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” “vision,” or “should,” or the negative thereof or other variations thereon or comparable terminology. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include, among others, the following:

•

our ability to address changes in the demand for child care and workplace solutions;

•

our ability to adjust to shifts in workforce demographics, economic conditions, office environments and unemployment rates;

•

our ability to hire and retain qualified teachers, management, employees, and maintain strong employee engagement;

•

the impact of public health crises, such as the COVID-19 pandemic, on our business, financial condition and results of operations;

•

our ability to address adverse publicity;

•

changes in federal child care and education spending policies and budget priorities;

•

our ability to acquire additional capital;

•

our ability to successfully identify acquisition targets, acquire businesses and integrate acquired operations into our business;

•

our reliance on our subsidiaries;

•

our ability to protect our intellectual property rights;

•

our ability to protect our information technology and that of our third-party service providers;

•

our ability to manage the costs and liabilities of collecting, using, storing, disclosing, transferring and processing personal information;

•

our ability to manage payment-related risks;

•

our expectations regarding the effects of existing and developing laws and regulations, litigation and regulatory proceedings;

•

our ability to maintain adequate insurance coverage;

•

the fluctuation in our stock price;

•

the occurrence of natural disasters, environmental contamination or other highly disruptive events;

•

our ability to maintain adequate insurance coverage; and

•

the other factors described in the section titled “Risk Factors” in Part 1 Item 1A. in our Annual Report on Form 10-K for the fiscal year ended December 28, 2024 and elsewhere in this Quarterly Report on Form 10-Q.

Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

KinderCare Learning Companies, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)


	March 29, 2025			December 28, 2024
Assets
Current assets:
Cash and cash equivalents	$	131,294		$	62,336
Accounts receivable, net		95,878			104,333
Prepaid expenses and other current assets		57,505			48,104
Total current assets		284,677			214,773
Property and equipment, net of accumulated depreciation of 545,150 and 522,650		417,030			418,524
Goodwill		1,126,382			1,119,714
Intangible assets, net of accumulated amortization of 150,902 and 148,593		427,457			429,766
Operating lease right-of-use assets		1,381,493			1,373,064
Other assets		81,019			89,626
Total assets	$	3,718,058		$	3,645,467
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	183,552		$	152,660
Related party payables		—			119
Current portion of long-term debt		9,668			7,251
Operating lease liabilities—current		149,967			144,919
Deferred revenue		30,627			26,376
Other current liabilities		96,611			81,433
Total current liabilities		470,425			412,758
Long-term debt, net		917,690			918,719
Operating lease liabilities—long-term		1,320,714			1,315,587
Deferred income taxes, net		27,034			30,907
Other long-term liabilities		97,312			102,987
Total liabilities		2,833,175			2,780,958
Commitments and contingencies (Note 14)
Shareholders' equity:
Preferred stock, par value $0.01; 25,000,000 shares authorized; no shares issued and outstanding as of March 29, 2025 and December 28, 2024		—			—
Common stock, par value $0.01; 750,000,000 shares authorized; 118,006,326 shares issued and outstanding as of March 29, 2025 and 117,984,749 shares issued and outstanding as of December 28, 2024		1,180			1,180
Additional paid-in capital		833,993			830,369
Retained earnings		51,418			30,261
Accumulated other comprehensive (loss) income		(1,708	)		2,699
Total shareholders' equity		884,883			864,509
Total liabilities and shareholders' equity	$	3,718,058		$	3,645,467

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

KinderCare Learning Companies, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(In thousands, except per share data)


	Three Months Ended
	March 29, 2025			March 30, 2024
Revenue	$	668,244		$	654,670
Costs and expenses:
Cost of services (excluding depreciation and impairment)		516,188			497,694
Depreciation and amortization		29,977			28,540
Selling, general, and administrative expenses		71,727			90,455
Impairment losses		1,510			4,362
Total costs and expenses		619,402			621,051
Income from operations		48,842			33,619
Interest expense		20,108			36,420
Interest income		(659	)		(2,108	)
Other expense (income), net		398			(3,284	)
Income before income taxes		28,995			2,591
Income tax expense		7,838			4,342
Net income (loss)	$	21,157		$	(1,751	)
Other comprehensive income, net of tax:
Change in net (losses) gains on cash flow hedges		(4,407	)		4,750
Total comprehensive income	$	16,750		$	2,999
Net income (loss) per common share:
Basic	$	0.18		$	(0.02	)
Diluted	$	0.18		$	(0.02	)
Weighted average number of common shares outstanding:
Basic		118,239			90,366
Diluted		118,321			90,366

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

KinderCare Learning Companies, Inc.

Condensed Consolidated Statements of Shareholders' Equity (Unaudited)

(In thousands)


	Three Months Ended March 30, 2024
											Accumulated
					Additional						Other			Total
	Common Stock				Paid-in			Retained			Comprehensive			Shareholders'
	Shares		Amount		Capital			Earnings			(Loss) Income			Equity
Balance as of December 30, 2023		90,366	$	904	$	383,188		$	123,101		$	(313	)	$	506,880
Distribution to parent						(320,000	)								(320,000	)
Stock-based compensation						14,155									14,155
Other comprehensive income, net of tax												4,750			4,750
Net loss									(1,751	)					(1,751	)
Balance as of March 30, 2024		90,366	$	904	$	77,343		$	121,350		$	4,437		$	204,034


	Three Months Ended March 29, 2025
											Accumulated
						Additional					Other			Total
	Common Stock					Paid-in			Retained		Comprehensive			Shareholders'
	Shares			Amount		Capital			Earnings		(Loss) Income			Equity
Balance as of December 28, 2024		117,985		$	1,180	$	830,369		$	30,261	$	2,699		$	864,509
Issuance of common stock upon settlement of restricted stock units		33			—		—								—
Common stock withheld for taxes in net settlement of restricted stock units		(12	)		—		(224	)							(224	)
Stock-based compensation							3,848								3,848
Other comprehensive loss, net of tax												(4,407	)		(4,407	)
Net income										21,157					21,157
Balance as of March 29, 2025		118,006		$	1,180	$	833,993		$	51,418	$	(1,708	)	$	884,883

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

KinderCare Learning Companies, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended
	March 29, 2025			March 30, 2024
Operating activities:
Net income (loss)	$	21,157		$	(1,751	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		29,977			28,540
Impairment losses		1,510			4,362
Change in deferred taxes		(2,339	)		(511	)
Amortization of debt issuance costs		1,569			408
Stock-based compensation		3,848			16,917
Realized and unrealized losses (gains) from investments held in deferred compensation asset trusts		671			(1,506	)
Gain on disposal of property and equipment		(167	)		(1,532	)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		8,455			(46	)
Prepaid expenses and other current assets		(10,320	)		(3,413	)
Other assets		5,819			2,196
Accounts payable and accrued liabilities		28,141			18,744
Leases		1,405			(1,095	)
Deferred revenue		4,251			3,427
Other current liabilities		13,584			(4,090	)
Other long-term liabilities		(8,998	)		3,469
Related party payables		(119	)		—
Cash provided by operating activities		98,444			64,119
Investing activities:
Purchases of property and equipment		(23,360	)		(24,108	)
Payments for acquisitions, net of cash acquired		(6,071	)		(6,175	)
Proceeds from the disposal of property and equipment		167			1,532
Investments in deferred compensation asset trusts		(2,179	)		(4,125	)
Proceeds from deferred compensation asset trust redemptions		3,055			1,489
Cash used in investing activities		(28,388	)		(31,387	)
Financing activities:
Payments of deferred offering costs		(275	)		—
Distribution to parent		—			(320,000	)
Proceeds from issuance of long-term debt		—			264,338
Principal payments of long-term debt		—			(3,977	)
Payments of debt issuance costs		(181	)		(201	)
Repayments of promissory notes		(81	)		(84	)
Payments of financing lease obligations		(336	)		(389	)
Tax payments related to net settlement of restricted stock units		(224	)		—
Cash used in financing activities		(1,097	)		(60,313	)
Net change in cash, cash equivalents, and restricted cash		68,959			(27,581	)
Cash, cash equivalents, and restricted cash at beginning of period		62,430			156,412
Cash, cash equivalents, and restricted cash at end of period	$	131,389		$	128,831

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

KinderCare Learning Companies, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)

(In thousands)


	Three Months Ended
	March 29, 2025		March 30, 2024
Reconciliation of cash, cash equivalents, and restricted cash to the unaudited condensed consolidated balance sheets:
Cash and cash equivalents	$	131,294	$	128,737
Restricted cash included within other assets		95		94
Total cash, cash equivalents, and restricted cash at end of period	$	131,389	$	128,831
Supplemental cash flow information:
Cash paid for interest	$	18,998	$	35,206
Cash paid for income taxes, net of refunds		193		284
Cash paid for amounts included in the measurement of operating lease liabilities		72,159		72,100
Non-cash operating activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	48,523	$	82,629
Deferred cloud computing implementation costs included in accounts payable and accrued liabilities and other current liabilities		1,676		—
Non-cash investing and financing activities:
Property and equipment additions included in accounts payable and accrued liabilities	$	9,004	$	5,099
Finance lease right-of-use assets obtained in exchange for finance lease liabilities		82		—
Reductions to finance lease right-of-use assets resulting from reductions to finance lease liabilities		1,261		—
Contingent consideration payable for acquisitions		1,200		—

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

KinderCare Learning Companies, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization—KinderCare Learning Companies, Inc. (the “Company”) offers early childhood education and care programs to children ranging from six weeks through 12 years of age. Founded in 1969, the services provided include infant, toddler, preschool, kindergarten, and before- and after-school programs. The Company provides childhood education and care programs within the following categories:

Community-Based and Employer-Sponsored Early Childhood Education and Care—The Company provides early childhood education and care services, as well as back-up care, primarily marketed under the names KinderCare Learning Centers and Crème School (formerly Crème de la Crème). Additionally, the Company partners with employer sponsors under a variety of arrangements such as discounted rent, enrollment guarantees, or an arrangement whereby the center is managed by the Company in return for a management fee. As of March 29, 2025, the Company provided community-based and employer-sponsored early childhood education and care services through 1,582 centers with a licensed capacity of 211,767 children in 40 states and the District of Columbia.

Before- and After-School Educational Services—The Company provides before- and after-school educational services for preschool and school-age children under the name Champions. As of March 29, 2025, Champions offered educational services through 1,038 sites in 28 states and the District of Columbia. These sites primarily operate at elementary school facilities.

Initial Public Offering—On October 8, 2024, the Company’s registration statement on Form S-1, as amended (File No. 333-281971) (“Form S-1”) related to its initial public offering (“IPO”), was declared effective by the Securities and Exchange Commission (“SEC”). In connection with the IPO, the Company converted Class A and Class B common stock, both with a par value of $0.0001 per share, to common stock, with a par value of $0.01 per share, at a ratio of 8.375 shares of Class A and Class B common stock to one share of common stock, which became effective immediately following the effectiveness of the Company’s registration statement on Form S-1 for its IPO (the “Common Stock Conversion”). As a result, 756.8 million shares of Class A common stock outstanding were converted to 90.4 million shares of common stock. All shares outstanding, per share amounts, and stock-based compensation awards disclosures, as applicable, for the three months ended March 30, 2024 have been adjusted to retrospectively reflect the Common Stock Conversion in the unaudited condensed consolidated interim financial statements and notes thereto.

Refer to Note 17, Shareholders' Equity, Member's Equity, and Equity-based Compensation, within the audited consolidated financial statements for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K for further information on events and transactions that occurred in connection with the IPO.

Basis of Presentation—The unaudited condensed consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with GAAP, have been condensed or omitted pursuant to those rules and regulations.

The unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to fairly state the Company’s financial position, results of operations, and cash flows for the periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three months ended March 29, 2025 are not necessarily indicative of the results to be expected for the fiscal year ending January 3, 2026 or for any other future annual or interim period.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K filed with the SEC on March 21, 2025. Capitalized terms not defined herein shall have the meaning set forth in the audited consolidated financial statements and notes thereto.

There have been no changes to the significant accounting policies described in the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K.

Recently Issued Accounting Pronouncements—In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), and in January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which requires a public business entity to disclose specific information about certain costs and expenses in the notes to the financial statements for interim and annual reporting periods. ASU 2024-03, as clarified by ASU 2025-01, is effective for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027, and may be applied prospectively or retrospectively. The Company is in the process of determining the impact this rule will have on the consolidated financial statements.

In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate Related Disclosures for Investors, which requires registrants to disclose climate-related information in registration statements and annual reports. The new rules would be effective for annual reporting periods beginning after December 31, 2024. However, in April 2024, the SEC exercised its discretion to stay these rules pending the completion of judicial review of certain consolidated petitions with the United States Court of Appeals for the Eighth Circuit in connection with these rules. The Company is in the process of determining the impact this rule will have on the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, which provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is effective for annual periods beginning after December 15, 2024 and may be applied prospectively or retrospectively. The adoption of ASU 2023-09 will result in modifications to the Company’s income tax disclosures beginning with the fiscal year ended January 3, 2026, however, the Company does not expect a material impact to the consolidated financial statements.

GOVERNMENT ASSISTANCE

The Company receives government assistance from various governmental entities to support the operations of its early childhood education and care centers and before- and after-school sites, which is comprised of both assistance relating to income (“Income Grants”) and capital projects. Income Grants consist primarily of funds received for reimbursement of food costs, teacher compensation, and classroom supplies, and in certain cases, as incremental revenue. Refer to Note 1, Organization and Summary of Significant Accounting Policies, and Note 2, Government Assistance, within the audited consolidated financial statements for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K for further information regarding the Company's government assistance policy and disclosures related to all forms of government assistance received.

A portion of the Company's food costs are reimbursed through the federal Child and Adult Care Food Program. The program is operated by states to partially or fully offset the cost of food for children that meet certain criteria. The Company recognized food subsidies of $12.1 million and $12.0 million during the three months ended March 29, 2025 and March 30, 2024, respectively, offsetting cost of services (excluding depreciation and impairment) in the unaudited condensed consolidated statements of operations and comprehensive income.

The Company receives grant funding for teacher compensation, classroom supplies, and other center operating costs by applying to various governmental grant programs and agencies. Grants of $14.5 million and $2.2 million, during the three months ended March 29, 2025 and March 30, 2024, respectively, were recognized as reimbursements offsetting cost of services (excluding depreciation and impairment) in the unaudited condensed consolidated statements of operations and comprehensive income.

The Company records grants receivable for grants that have met the Company's recognition criteria but have not yet been received as well as deferred grants for amounts received from government assistance that do not yet meet the Company’s recognition criteria. As of March 29, 2025 and December 28, 2024, the Company recorded $1.0 million and $1.8 million in grants receivable, respectively, within prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets. As of March 29, 2025 and December 28, 2024, the Company recorded $6.4 million and $7.4 million in deferred grants, respectively, within other current liabilities on the unaudited condensed consolidated balance sheets.

COVID-19 Related Stimulus

The federal government passed multiple stimulus packages since the onset of the coronavirus disease 2019 (“COVID-19”) pandemic to stabilize the child care industry, including without limitation, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), the Consolidated Appropriations Act, and the American Rescue Plan Act. “COVID-19 Related Stimulus”

refers to grants arising from governmental acts relating to the COVID-19 pandemic and are accounted for in accordance with the Company's government assistance policy.

COVID-19 Related Stimulus is recognized as revenue or as cost reimbursements based on stipulations within each specific grant. The Company recognized $0.7 million and $24.1 million during the three months ended March 29, 2025 and March 30, 2024, respectively, in funding for reimbursement of center operating expenses, offsetting cost of services (excluding depreciation and impairment) in the unaudited condensed consolidated statements of operations and comprehensive income.

The Employee Retention Credit (“ERC”), established by the CARES Act and extended and expanded by several subsequent governmental acts, allows eligible businesses to claim a per employee payroll tax credit based on a percentage of qualified wages, including health care expenses, paid during calendar year 2020 through September 2021. During the fiscal year ended December 31, 2022, the Company applied for ERC for qualified wages and benefits paid throughout the fiscal years ended January 1, 2022 and January 2, 2021. Reimbursements of $62.0 million in cash tax refunds for ERC claimed, along with $2.3 million in interest income, were received during the fiscal year ended December 30, 2023. Due to the unprecedented nature of ERC legislation and the changing administrative guidance, not all of the ERC reimbursements received have met the Company's recognition criteria. During the second quarter of the fiscal year ended December 28, 2024, the Company recognized $23.4 million of ERC in cost of services (excluding depreciation and impairment), along with $0.5 million in interest income in the unaudited condensed consolidated statements of operations and comprehensive income. No ERC was recognized during the three months ended March 29, 2025 and March 30, 2024. As of both March 29, 2025 and December 28, 2024, deferred ERC liabilities of $31.4 million were recorded in other current liabilities and $12.3 million were recorded in other long-term liabilities on the unaudited condensed consolidated balance sheets. Additionally, as of both March 29, 2025 and December 28, 2024, the Company recorded $3.4 million in ERC receivables in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets as there is reasonable assurance these reimbursements will be received. Refer to Note 20, Income Taxes, within the audited consolidated financial statements for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K for further information regarding uncertain tax positions for ERC not yet recognized.

ACQUISITIONS

The Company's growth strategy includes expanding and diversifying service offerings through acquiring high quality early childhood education centers.

2025 Acquisitions—During the three months ended March 29, 2025, the Company acquired five early childhood education centers in five separate business acquisitions which were each accounted for as business combinations. The centers were acquired for cash consideration of $6.1 million and contingent consideration of $1.2 million. The Company recorded goodwill of $6.7 million, which is deductible for tax purposes, and fixed assets of $0.6 million. The operating results for the acquired centers, which were not material to the Company’s overall financial results, are included in the unaudited condensed consolidated statements of operations and comprehensive income from the dates of acquisition.

The fair value of the contingent consideration is based on the probability and timing of the continuation of the lease of the related acquired center. The amounts are payable six to nine years from acquisition date and the range of undiscounted amounts payable under the asset purchase agreement is between zero and $1.2 million. As of March 29, 2025, there were no changes in the recognized amounts or range of outcomes of the contingent consideration from acquisition. Refer to Note 7, Fair Value Measurements, for additional information related to the Company's contingent consideration payable.

2024 Acquisitions—During the three months ended March 30, 2024, the Company acquired six early childhood education centers in three separate business acquisitions which were each accounted for as business combinations. The centers were acquired for cash consideration of $6.2 million. The Company recorded goodwill of $5.5 million, which is deductible for tax purposes, and fixed assets of $0.7 million. The operating results for the acquired centers, which were not material to the Company’s overall financial results, are included in the unaudited condensed consolidated statements of operations and comprehensive income from the dates of acquisition.

REVENUE RECOGNITION

Contract Balances

The Company records deferred revenue when payments are received or due in advance of the Company’s performance under the contract, which is recognized as revenue as the performance obligation is satisfied. Payment from parents for tuition is typically received in advance on a weekly or monthly basis, in which case the revenue is deferred and recognized as the performance obligation is satisfied. The Company has the unconditional right to consideration as it satisfies the performance obligations,

therefore no contract assets are recognized. During the three months ended March 29, 2025, $26.0 million was recognized as revenue related to the deferred revenue balance recorded as of December 28, 2024. During the three months ended March 30, 2024, $25.2 million was recognized as revenue related to the deferred revenue balance recorded as of December 30, 2023.

The Company applied the practical expedient of expensing costs incurred to obtain a contract if the amortization period of the asset is one year or less. Sales commissions are expensed as incurred in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income.

Disaggregation of Revenue

The following table disaggregates total revenue between education centers and school sites (in thousands):


	Three Months Ended
	March 29, 2025		March 30, 2024
Early childhood education centers	$	615,007	$	605,283
Before- and after-school sites		53,237		49,387
Total revenue	$	668,244	$	654,670

A portion of revenue is generated from families whose tuition is subsidized by amounts received from government agencies. Subsidy revenue was $240.1 million and $215.8 million during the three months ended March 29, 2025 and March 30, 2024, respectively, recognized within revenue in the unaudited condensed consolidated statements of operations and comprehensive income.

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 transaction price allocated to unsatisfied performance obligations for contracts with an original contractual period of one year or less, or for variable consideration allocated entirely to wholly unsatisfied promises that form part of a series of services. The Company’s remaining performance obligations not subject to the practical expedients are not material.

GOODWILL

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


Balance as of December 28, 2024	$	1,119,714
Additions from acquisitions		6,668
Balance as of March 29, 2025	$	1,126,382

LEASES

Right-of-use (“ROU”) assets and lease liabilities balances were as follows (in thousands):


	March 29, 2025		December 28, 2024
Assets:
Operating lease right-of-use assets	$	1,381,493	$	1,373,064
Finance lease right-of-use assets		3,298		4,547
Total lease right-of-use assets	$	1,384,791	$	1,377,611
Liabilities—current:
Operating lease liabilities	$	149,967	$	144,919
Finance lease liabilities		1,041		1,406
Total current lease liabilities		151,008		146,325
Liabilities—long-term:
Operating lease liabilities		1,320,714		1,315,587
Finance lease liabilities		2,643		3,793
Total long-term lease liabilities		1,323,357		1,319,380
Total lease liabilities	$	1,474,365	$	1,465,705

Finance lease ROU assets are included in other assets and finance lease liabilities are included in other current liabilities and other long-term liabilities on the unaudited condensed consolidated balance sheets. Refer to Note 7, Fair Value Measurements, for information regarding impairment of ROU assets.

Lease Expense

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


	Three Months Ended
	March 29, 2025		March 30, 2024
Lease expense:
Operating lease expense	$	73,090	$	70,210
Finance lease expense:
Amortization of right-of-use assets		350		387
Interest on lease liabilities		94		137
Short-term lease expense		2,775		1,776
Variable lease expense		17,970		17,067
Total lease expense	$	94,279	$	89,577

Other Information

The weighted average remaining lease term and the weighted average discount rate as of March 29, 2025 and December 28, 2024 were as follows:


	March 29, 2025			December 28, 2024
Weighted average remaining lease term (in years) (Operating)		8			8
Weighted average remaining lease term (in years) (Finance)		4			4
Weighted average discount rate (Operating)		9.3	%		9.4	%
Weighted average discount rate (Finance)		9.1	%		8.5	%

Maturity of Lease Liabilities

The following table summarizes the maturity of lease liabilities as of March 29, 2025 (in thousands):


	Finance Leases		Operating Leases		Total Leases
Remainder of 2025	$	1,038	$	205,963	$	207,001
2026		1,146		285,999		287,145
2027		1,051		270,528		271,579
2028		525		251,169		251,694
2029		249		221,831		222,080
Thereafter		334		910,143		910,477
Total lease payments		4,343		2,145,633		2,149,976
Less imputed interest		659		674,952		675,611
Present value of lease liabilities		3,684		1,470,681		1,474,365
Less current portion of lease liabilities		1,041		149,967		151,008
Long-term lease liabilities	$	2,643	$	1,320,714	$	1,323,357

As of March 29, 2025, the Company had entered into additional operating leases that have not yet commenced with total fixed payment obligations of $218.9 million. The leases are expected to commence between 2025 and 2027 and have initial lease terms of approximately 15 years.

The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The rates are established based on the Company’s first lien term loan.

FAIR VALUE MEASUREMENTS

Fair value guidance defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on

the measurement date. The Company uses a three-level hierarchy established by the FASB that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach).

The levels of the fair value hierarchy are described below:

•

Level 1: Quoted prices in active markets for identical assets or liabilities.

•

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•

Level 3: Unobservable inputs with little or no market data available, which require the reporting entity to develop its own assumptions.

Investments held for the Deferred Compensation Plan—The Company records the fair value of the investments and cash and cash equivalents held for the deferred compensation plan in other assets on the unaudited condensed consolidated balance sheets. The carrying value of cash and cash equivalents held in the fund approximates fair value, and the amounts were not material as of March 29, 2025 and December 28, 2024. The investments held in the plan consist of mutual funds and money market funds with fair values that can be corroborated by prices for identical assets and therefore are classified as Level 1 investments under the fair value hierarchy. The following tables summarize the composition of the underlying investments in the Company's deferred compensation plan trust assets, excluding cash and cash equivalents (in thousands):


	Fair Value Measurements Using
	Balance as of March 29, 2025		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money Market Funds	$	6,323	$	6,323	$	—	$	—
Mutual Funds		30,002		30,002		—		—
	$	36,325	$	36,325	$	—	$	—


	Fair Value Measurements Using
	Balance as of December 28, 2024		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money Market Funds	$	6,499	$	6,499	$	—	$	—
Mutual Funds		31,432		31,432		—		—
	$	37,931	$	37,931	$	—	$	—

Contingent Consideration Payable—The Company measures contingent consideration payable at fair value based on a series of unobservable inputs, including the timing and probability of the occurrence of future events, and requires judgment from management. As such, contingent consideration payable is classified as Level 3. Significant market assumptions include a discount rate and the probability of the occurrence of specific events. Refer to Note 3, Acquisitions, for additional information related to the Company's contingent consideration payable.

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


Balance at December 28, 2024	$	—
Issuance of contingent consideration		1,200
Balance at March 29, 2025	$	1,200

Derivative Financial Instruments—The Company's derivative financial instruments include interest rate derivative contracts. The fair value of derivative financial instruments is determined using observable market inputs such as quoted prices for similar instruments, forward pricing curves, and interest rates, and considers nonperformance risk of the Company and its

counterparties, and as such, derivative financial instruments are classified as Level 2. The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contracts. The Company elects to record its derivative financial instruments at net fair value on the unaudited condensed consolidated balance sheets. As of March 29, 2025 and December 28, 2024, $1.0 million and $2.0 million, respectively, related to the Company's interest rate derivative contracts were recorded in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets. As of March 29, 2025, $3.4 million related to the Company's interest rate derivative contracts were recorded in other long-term liabilities and as of December 28, 2024, $1.7 million related to the Company's interest rate derivative contracts were recorded in other assets on the unaudited condensed consolidated balance sheets. Refer to Note 9, Risk Management and Derivatives, for additional information regarding the Company’s derivative financial instruments.

Long-Term Debt—The Company records long-term debt on the unaudited condensed consolidated balance sheets at adjusted cost, net of unamortized issuance costs. The estimated fair value of first lien term loans was $966.8 million as of March 29, 2025 and $978.9 million as of December 28, 2024 and is based on mid-point prices, or prices for similar instruments from active markets, on the balance sheet date. Judgment is required to develop these estimates, and as such, the first lien term loan and the first lien revolving credit facility are classified as Level 2. Refer to Note 8, Long-term Debt, for additional information regarding the Company's long-term debt.

Other Financial Instruments—The carrying value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued liabilities approximates fair value due to the short-term nature of these assets and liabilities.

There were no transfers between levels within the fair value hierarchy during any of the periods presented.

Nonrecurring Fair Value Estimates—The estimated fair value of the Company's long-lived assets are calculated using the discounted cash flow (“DCF”) method of the income approach to fair value. The DCF method for property and equipment incorporates unobservable inputs (Level 3) which include future cash flow projections and discount rate assumptions. For ROU assets, the DCF method incorporates market-based inputs (Level 3) which include the as-is market rents and discount rates.

The following table presents the amount of impairment expense of long-lived assets (in thousands):


	Three Months Ended
	March 29, 2025		March 30, 2024
Impairment of property and equipment	$	1,449	$	2,314
Impairment of lease right-of-use assets		61		2,048
Total impairment losses	$	1,510	$	4,362

Refer to Note 6, Leases, for additional information regarding the Company's ROU assets.

LONG-TERM DEBT

Long-term debt included the following (in thousands):


	March 29, 2025			December 28, 2024
First lien term loans	$	966,797		$	966,797
Debt issuance costs, net		(39,439	)		(40,827	)
Total debt		927,358			925,970
Current portion of long-term debt		(9,668	)		(7,251	)
Long-term debt, net	$	917,690		$	918,719

Senior Secured Credit Facilities—The Company's Credit Agreement includes $1,229.3 million senior secured credit facilities which consist of a $966.8 million first lien term loan (the “First Lien Term Loan Facility”) and a $262.5 million revolving credit facility (“First Lien Revolving Credit Facility”) (collectively, the “Senior Secured Credit Facilities”).

The First Lien Term Loan Facility bears interest at a variable rate equal to the Secured Overnight Financing Rate (“SOFR”) plus 3.25% per annum. In addition, amounts drawn under the First Lien Revolving Credit Facility bear interest at SOFR plus an applicable rate between 2.50% and 3.00% per annum, based on a pricing grid of the Company's First Lien Term Loan Facility net leverage ratio.

In February 2025, the Company entered into an amendment to the Credit Agreement to increase the total commitments under the First Lien Revolving Credit Facility by a net amount of $22.5 million as well as reclassify and extend $5.0 million of the previously non-extended commitments, increasing the total borrowing capacity of the First Lien Revolving Credit Facility to $262.5 million. All other terms under the Credit Agreement remain unchanged as a result of the amendment.

The Credit Agreement allows for letters of credit to be drawn against the current borrowing capacity of the First Lien Revolving Credit Facility, capped at $172.5 million. The Company pays certain fees under the First Lien Revolving Credit Facility, including a fronting fee on outstanding letters of credit of 0.125% per annum and a commitment fee on the unused portion of the First Lien Revolving Credit Facility at a rate between 0.25% and 0.50% per annum, based on a pricing grid of the Company's First Lien Term Loan Facility net leverage ratio. Additionally, fees on the outstanding letters of credit bear interest at a rate equal to the applicable rate for amounts drawn under the First Lien Revolving Credit Facility.

All obligations under the Credit Agreement are secured by substantially all the assets of the Company and its subsidiaries. The Credit Agreement contains various financial and nonfinancial loan covenants and provisions. The Company's financial loan covenant is a quarterly maximum First Lien Term Loan Facility net leverage ratio. The First Lien Term Loan Facility net leverage ratio is required to be tested only if, on the last day of each fiscal quarter, the amount of revolving loans outstanding under the First Lien Revolving Credit Facility, excluding all letters of credit, exceeds 35% of total revolving commitments on such date. Nonfinancial loan covenants restrict the Company’s ability to, among other things, incur additional debt; make fundamental changes to the business; make certain restricted payments, investments, acquisitions, and dispositions; or engage in certain transactions with affiliates. As of March 29, 2025, the Company was in compliance with the covenants of the Credit Agreement.

An annual calculation of excess cash flows determines if the Company will be required to make a mandatory prepayment on the First Lien Term Loan Facility. Mandatory prepayments would reduce future required quarterly principal payments.

The Company had no outstanding borrowings on the First Lien Revolving Credit Facility and had an available borrowing capacity of $207.4 million after giving effect to the outstanding letters of credit under the Credit Agreement of $55.1 million as of March 29, 2025. Additionally, the Company had no outstanding borrowings on the First Lien Revolving Credit Facility and had an available borrowing capacity of $184.2 after giving effect to the outstanding letters of credit under the Credit Agreement of $55.8 million as of December 28, 2024.

The Company capitalized original issue discount and debt issuance costs of $0.2 million during the three months ended March 29, 2025, related to the February 2025 amendment to the Credit Agreement. The Company capitalized original issue discount and debt issuance costs of $0.2 million during the three months ended March 30, 2024, related to the March 2024 amendment to the Credit Agreement. These costs are being amortized over the terms of the related debt instruments and amortization expense is included within interest expense in the unaudited condensed consolidated statements of operations and comprehensive income.

The Company did not incur any gain or loss on extinguishment of debt during the three months ended March 29, 2025 and March 30, 2024.

Principal payments on the First Lien Term Loan Facility are payable in arrears on the last business day of each calendar year quarter, with the final payment of the remaining principal balance due in June 2030 when the First Lien Term Loan Facility matures. Interest payments on the Senior Secured Credit Facilities are payable in arrears on the last business day of each calendar year quarter. The $252.5 million of extended commitments under the First Lien Revolving Credit Facility mature in October 2029, while the $10.0 million of non-extended commitments have a maturity date of June 2028. Future principal payments on long-term debt for the remaining fiscal year ending January 3, 2026 and for the fiscal years thereafter are as follows (in thousands):


Remainder of 2025	$	9,668
2026		9,668
2027		9,668
2028		9,668
2029		7,251
Thereafter		920,874
	$	966,797

Other Credit Facilities—In February 2024, the Company entered into a credit facilities agreement (the “LOC Agreement”) which allows for $20.0 million in letters of credit to be issued. The Company pays certain fees under the LOC Agreement, including fees on the outstanding balance of letters of credit at a rate of 5.95% per annum and fees on the unused portion of letters of credit at a rate of 0.25% per annum. Fees on the letters of credit are payable in arrears on the last business day of each March, June, September, and December. The LOC Agreement matures in December 2026. Upon entering into the LOC Agreement, the Company issued $20.0 million in letters of credit and cancelled $16.7 million of outstanding letters of credit under the First Lien Revolving Credit Facility. The Company had $20.0 million outstanding letters of credit under the LOC Agreement as of March 29, 2025 and December 28, 2024.

RISK MANAGEMENT AND DERIVATIVES

The Company is exposed to market risks, including the effect of changes in interest rates, and may use derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. The Company may elect to designate certain derivatives as hedging instruments under ASC 815, Derivatives and Hedging. The Company formally documents all relationships between designated hedging instruments and hedged items, as well as its risk management and strategy for undertaking hedge transactions.

Cash Flow Hedges—For interest rate derivative contracts that are designated and qualify as cash flow hedges, unrealized gains or losses resulting from changes in fair value of the derivative contracts are reported as a component of other comprehensive income or loss, inclusive of the related income tax effects, within the consolidated statements of operation and comprehensive income. Gains and losses are reclassified into interest expense when realized, with the related income tax effects reclassified into income tax expense, during the same period in which interest expense is recognized on the hedged item, the First Lien Term Loan Facility. The Company classifies the cash flows at settlement from these designated cash flow hedges in the same category as the cash flows from the related hedged items within the cash provided by operations component of the unaudited condensed consolidated statements of cash flows.

In October 2022, the Company entered into an interest rate cap contract on approximately half of the variable rate debt under the senior secured credit facilities. The cap commenced on December 31, 2022 and provided protection in the form of variable payments from a counterparty in the event that the three-month SOFR increased above 4.85%. The notional amount of the derivative decreased quarterly as principal payments were made on the First Lien Term Loan Facility. The notional amount was $659.8 million immediately prior to its expiration on June 28, 2024. The Company paid an initial premium of $5.0 million for the interest rate cap. The Company elected to exclude the change in the time value of the interest rate cap from the assessment of hedge effectiveness and amortized the initial value of the premium over the life of the contract. The premium amortization was recognized in interest expense in the unaudited condensed consolidated statements of operations and comprehensive income. The derivative was considered highly effective through its expiration on June 28, 2024.

In January 2024, the Company entered into a pay-fixed-receive-float interest rate swap contract with a notional amount of $400.0 million through its maturity and a fixed interest rate of 3.85% per annum. Additionally, in February 2024, the Company entered into two pay-fixed-receive-float interest rate swap contracts with a combined notional amount of $400.0 million through their maturity and fixed interest rates of 3.89% per annum. The contracts were executed in order to hedge the interest rate risk on a portion of the variable debt under the Credit Agreement. The Company receives variable amounts of interest from a counterparty at the greater of three-month SOFR or 0.50% per annum. The interest rate swap contracts commenced on June 28, 2024 and will mature on December 31, 2026.

In March 2025, the Company entered into two forward starting pay-fixed-receive-float interest rate swap contracts, one with a fixed interest rate of 3.72% per annum and the other with a fixed interest rate of 3.74% per annum, with a combined notional amount of $500.0 million through their maturity. The contracts will commence when the Company's current interest rate swap contracts expire in December 2026 and will mature in December 2027. The contracts were executed in order to hedge the interest rate risk on a portion of the variable debt under the Credit Agreement. The Company will receive variable amounts of interest from a counterparty at the greater of three-month SOFR or 0.50% per annum.

As of March 29, 2025, the Company's derivatives are considered highly effective. The Company estimates that $1.0 million, before income taxes, of deferred gains recognized within accumulated other comprehensive (loss) income as of March 29, 2025 will be reclassified as a decrease in interest expense within the next 12 months. Actual amounts reclassified into net (loss) income during the next 12 months are dependent on changes in the three-month SOFR.

The following table presents the amounts affecting the unaudited condensed consolidated statements of operations and comprehensive income (in thousands):


	Derivatives Designated as Cash Flow Hedging Instruments
	(Loss) Gain Recognized in Other Comprehensive Income			(Gain) Loss Reclassified from Accumulated Other Comprehensive (Loss) Income into Income			Total Effect on Other Comprehensive Income
Three Months Ended March 29, 2025
Interest rate derivative contracts	$	(4,993	)	$	(948	)	$	(5,941	)
Income tax effect		1,289			245			1,534
Net of income taxes	$	(3,704	)	$	(703	)	$	(4,407	)

Three Months Ended March 30, 2024
Interest rate derivative contracts (1)	$	6,400		$	3		$	6,403
Income tax effect		(1,652	)		(1	)		(1,653	)
Net of income taxes	$	4,748		$	2		$	4,750

(1)

The amount excluded from the assessment of hedge effectiveness reclassified into interest expense, which related to amortization of the interest rate cap premium, was $0.8 million during the three months ended March 30, 2024.

Credit Risk—The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with at or above investment grade credit ratings. This does not eliminate the Company’s exposure to credit risk with these institutions; however, the Company’s risk is limited to the fair value of the instruments. The Company is not aware of any circumstance or condition that would preclude a counterparty from complying with the terms of the derivative contracts and will continuously monitor the credit worthiness of all its derivative counterparties for any significant adverse changes.

10.

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The changes in accumulated other comprehensive (loss) income, net of tax, are comprised of unrealized gains and losses on cash flow hedging instruments, and were as follows (in thousands):


Balance as of December 30, 2023	$	(313	)
Other comprehensive gains before reclassifications		4,748
Reclassifications to net income (loss) of previously deferred losses		2
Balance as of March 30, 2024	$	4,437


Balance as of December 28, 2024	$	2,699
Other comprehensive losses before reclassifications		(3,704	)
Reclassifications to net income (loss) of previously deferred gains		(703	)
Balance as of March 29, 2025	$	(1,708	)

11.

STOCK-BASED COMPENSATION

2022 Incentive Award Plan—The 2022 Incentive Award Plan (“2022 Plan”), as amended, provides for the issuance of 15.7 million previously unissued shares of common stock in connection with nonqualified stock options and restricted stock units (“RSUs”) granted under the 2022 Plan. Refer to Note 17, Shareholders' Equity, Member's Equity, and Equity-based Compensation, within the audited consolidated financial statements for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K for additional detail on the terms of the 2022 Plan.

The Company granted 0.7 million stock options with an exercise price of $16.37 at a grant date fair value of $7.47 per stock option and 0.6 million RSUs at a grant date fair value of $16.37 per RSU during the three months ended March 29, 2025. Awards granted to employees during the three months ended March 29, 2025 have a service-based vesting condition for which the awards vest 25% upon the first anniversary of the grant date and the remaining in equal quarterly installments over the following three years, subject to the retirement eligibility of individual holders, and stock options have fixed 10-year terms for

exercise. RSUs granted to the Company's board of directors (the “Board”) during the three months ended March 29, 2025 have a service-based vesting condition for which the awards vest in June 2025.

Stock-based Compensation Expense—Total stock-based compensation expense for all stock-based compensation awards was $4.1 million and $16.9 million during the three months ended March 29, 2025 and March 30, 2024, and was recognized in selling, general, and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive income. Stock-based compensation expense recognized during the three months ended March 30, 2024 includes $14.3 million in expense from the March 2024 distribution to profit interest unit holders and related modification to the 2015 Equity Incentive Plan, which was terminated in connection with the Company’s IPO in October 2024. As of March 29, 2025, the total unrecognized stock-based compensation expense for stock options and RSUs, net of estimated forfeitures, was $20.6 million, which will be recognized over the remaining weighted average period of 2.5 years.

12.

NET INCOME PER COMMON SHARE

The reconciliations of basic and diluted net income (loss) per common share for the three months ended March 29, 2025 and March 30, 2024 are set forth in the table below (in thousands, except per share data):


	Three Months Ended
	March 29, 2025		March 30, 2024
Net income (loss) available to common shareholders, basic and diluted	$	21,157	$	(1,751	)
Weighted average number of common shares outstanding, basic (1)		118,239		90,366
Effect of dilutive securities (1)		82		—
Weighted average number of common shares outstanding, diluted (1)		118,321		90,366
Net income (loss) per common share:
Basic (1)	$	0.18	$	(0.02	)
Diluted (1)	$	0.18	$	(0.02	)

(1)

The outstanding shares and per share amounts have been retrospectively adjusted to reflect the Common Stock Conversion for the three months ended March 30, 2024. Refer to Note 1, Organization and Summary of Significant Accounting Policies, for further information.

Prior to the amendment to the Company's certificate of incorporation in October 2024 made in connection with the IPO and Common Stock Conversion, vested stock options under the 2022 Plan were contractually participating securities because stock option holders had a non-forfeitable right to receive dividends when the Company exceeds a stated distributable amount. The stated distributable amount was not met during the three months ended March 30, 2024, and therefore, the stock options were not considered as participating in undistributed earnings in the computation of basic and diluted net income (loss) per common share for the period. As a result of the amended certificate of incorporation in connection with the IPO, vested stock options are no longer contractually participating securities.

During the three months ended March 29, 2025, 2.5 million shares of common stock from stock options and 0.2 million from RSUs were excluded from the calculation of diluted net income (loss) per common share as their effect was antidilutive. During the three months ended March 30, 2024, stock options and RSUs were cash-settled and liability-classified, and therefore, no shares were available to be excluded from the calculation of diluted net income (loss) per common share. Refer to Note 17, Shareholders' Equity, Member's Equity, and Equity-based Compensation, within the audited consolidated financial statements for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K for further information on the modifications to the 2022 Plan.

13.

INCOME TAXES

The Company’s effective tax rates were 27.0% and 167.6% for the three months ended March 29, 2025 and March 30, 2024, respectively. Compared to the statutory rate, the difference in the effective tax rate for the three months ended March 29, 2025 was primarily due to state income taxes. Compared to the statutory rate, the difference in the effective tax rate for the three months ended March 30, 2024 was primarily due to tax expense from nondeductible stock-based compensation and state income taxes.

The Company considers all available positive and negative evidence when assessing the carrying amount of its deferred tax assets. Evidence includes the anticipated impact on future taxable income arising from the reversal of temporary differences,

actual operating results for the trailing twelve quarters, the ongoing assessment of financial performance, and available tax planning strategies, if any, that management considers prudent and feasible. No valuation allowance was required as of March 29, 2025 and December 28, 2024. The Company will continue to reassess the carrying amount of its deferred tax assets.

The Company is no longer subject to examination by tax authorities for years before 2012.

14.

COMMITMENTS AND CONTINGENCIES

Litigation—The Company is subject to claims and litigation arising in the ordinary course of business. The Company believes the accruals recorded in the unaudited condensed consolidated interim financial statements are adequate in light of the probable and estimable liabilities. The Company believes that none of the claims or litigation of which it is aware will materially affect the unaudited condensed consolidated interim financial statements, although assurance cannot be given with respect to the ultimate outcome of any such claims or actions.

15.

RELATED PARTY TRANSACTIONS

Management Services Agreement—In August 2015, the Company entered into a management services agreement with Partners Group (USA), Inc. (“Partners Group”), a related party of the Company’s former ultimate parent, pursuant to which Partners Group agreed to provide certain management and advisory services to the Company on an ongoing basis for an annual management fee of $4.9 million payable in equal quarterly installments. Management services expense is included in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income. In connection with the IPO, the management services agreement with Partners Group was terminated in October 2024 in accordance with its terms.

KC Parent—KC Parent, LP (“KC Parent”) was the Company’s direct parent prior to the Company's IPO. In connection with the Company's IPO, all shares of the Company’s common stock held by KC Parent were distributed to unitholders of KC Parent in proportion to their interests in KC Parent.

In March 2024, the Company made a $320.0 million distribution to KC Parent, which was financed by proceeds from the incremental first lien term loan and cash on-hand and was recorded within additional paid-in capital on the consolidated balance sheets. KC Parent then paid a $276.9 million distribution to Class A Unit holders and a $42.6 million distribution to profit interest unit holders pursuant to the KC Parent, LP Agreement and 2015 Equity Incentive Plan.

Lease Agreements—The Company is the lessee in several lease agreements in which a former limited partner of KC Parent has ownership interest in the lessor entities. Following the distribution of KC Parent's shares of the Company's common stock in October 2024, the former limited partner of KC Parent is not considered a related party and rent expense associated with these lessor entities no longer represents a related party transaction. Rent expense is included in cost of services (excluding depreciation and impairment) and selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income.

As of March 29, 2025, there were no amounts due to unconsolidated related parties. As of December 28, 2024, the Company had $0.1 million in related party payables due to Partners Group for management services provided prior to the termination of the agreement upon the Company's IPO.

During the three months ended March 29, 2025, the Company had no expenses recognized from unconsolidated related parties. During the three months ended March 30, 2024, the Company recognized $1.2 million in Partners Group management services and $4.7 million in related parties rent in the unaudited condensed consolidated statements of operations and comprehensive income.

16.

SEGMENT INFORMATION

The Company uses the “management approach” in determining its operating segments. The management approach considers the internal organization and reporting used by the Company’s Chief Operating Decision Maker (“CODM”) for making strategic decisions, assessing performance, and allocating resources. The Company’s CODM has been identified as the Chief Executive Officer of the Company.

The Company determined it operates as one consolidated segment and therefore has one reportable segment. The consolidated Company segment derives revenue primarily from providing early childhood education and care services at centers and before- and after-school sites.

As a single reportable segment entity, the GAAP measure utilized by the CODM to assess performance and allocate resources is the Company's consolidated net (loss) income. For example, the CODM uses consolidated net (loss) income to monitor budget versus actual results, make decisions on capital investments, as well as to measure market competition and achievement of Company strategic objectives. Consolidated revenue, significant segment expenses, and net (loss) income are reported on the unaudited condensed consolidated statements of operations and comprehensive income and the measure of segment assets is reported on the unaudited condensed consolidated balance sheets as total assets. The accounting policies of the consolidated Company segment are the same as those described in Note 1, Organization and Summary of Significant Accounting Policies, within the audited consolidated financial statements for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K.

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

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited condensed consolidated financial statements and notes thereto for the three months ended March 29, 2025 and March 30, 2024 included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2024 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 21, 2025. Some of the information included in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Our Company

KinderCare Learning Companies, Inc. (“the Company,” “we,” “us,” and “our”) is a leading provider of high-quality early childhood education (“ECE”) in the United States. We are a mission-driven organization, rooted in a commitment to providing all children with the very best start in life. We serve children ranging from six weeks to 12 years of age across our market-leading footprint of 1,582 early childhood education centers with center capacity for 211,767 children and 1,038 before- and after-school sites located in 41 states and the District of Columbia as of March 29, 2025.

On October 8, 2024, our registration statement on Form S-1, as amended (File No. 333-281971) (“Form S-1”) related to our initial public offering (“IPO”), was declared effective by the SEC, and our IPO was completed on October 10, 2024. In connection with our IPO, the Company converted Class A and Class B common stock, both with a par value of $0.0001 per share, to common stock, with a par value of $0.01 per share, at a ratio of 8.375 shares of Class A and Class B common stock to one share of common stock, which became effective immediately following the effectiveness of our registration statement on Form S-1 for our IPO (“Common Stock Conversion”). As a result, prior periods presented in our unaudited condensed consolidated financial statements and notes thereto as of and for the three months ended March 29, 2025 have been adjusted to retrospectively reflect the Common Stock Conversion. Refer to Note 1 within the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 17 within the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2024 for further information.

Factors Affecting Results of Operations

The following factors, among others described herein, have been important to our business and we expect them to impact our results of operations and financial condition in future periods:

•

Increase revenues through improved occupancy and consistent price increases. Our future revenue growth is in part dependent on us continuing to grow revenues across our portfolio of centers. We invest in developing our brand, which has become widely recognized in the ECE market. Although we expect marketing activities to increase our cost of services, we expect them to positively impact our results of operations in the future.

Occupancy improvement: We aim to improve occupancy rates across our portfolio. Historically, we increased our average occupancy through a combination of strategic investments in technology and talent, as well as implementing best practices at our centers. We invest significant resources into our technology infrastructure to support our center and site operations and interactions with families. As our occupancy grows, we have an opportunity to gain further operating leverage and improve profitability as we allocate fixed costs over more enrollments.

Pricing model designed for continued growth: We expect to implement regular price increases to support center re-investment and enhance our operational performance. Tuition increases are standard across the industry, and we view them as a reliable component of our business model. Additionally, while we expect rates to increase each year, the out-of-pocket costs paid by parents with children who continue to enroll in our programs decline on an annual basis as tuition costs decrease as children age-up (e.g., three-year olds have lower tuition costs than two-year olds). Assuming consistent enrollment across ages, tuition increases have an immediate positive impact to revenue.

•

Expand footprint through greenfield development and strategic acquisitions. Our long-term revenue growth depends on the expansion of our footprint, either through opening new greenfield centers or acquiring centers. We have a rigorous integration approach to transition acquired centers into our portfolio that allow us to deliver a consistent level of quality, as expected by our clients and accreditors. Given the significant fragmentation in our industry, we expect to continue to

pursue acquisitions complementary to our existing portfolio. Expansion will require cash investment, but we anticipate a long-term increase in both revenue and profit.

•

Develop and nurture other revenue streams and expand service offerings. Supporting services adjacent to our ECE business provide diversification and drives incremental revenue. Leveraging our employer relationships, our business-to-business offerings, which include tuition benefits programs and employer-sponsored centers, are poised for growth as employers are increasingly recognizing the importance of supporting their employees with access to quality ECE programs. In the before- and after-school programs market we have contracts with approximately 2% of the over 64,000 elementary schools in the United States, providing significant opportunity to continue to grow our footprint.

•

Access to governmental funding and advocacy to support the ECE industry. We receive various forms of federal, state, and local governmental funding to support our operations and serve more families including reimbursements for food costs through the federal Child and Adult Food Care Program as well as grants for capital purchases, teacher compensation, and other center operating costs. In addition, we proactively work with prospective and current families to help them access public subsidy funding. As a market leader, we believe we are well positioned to advocate for continued and increased government support for the broader ECE industry.

•

Adapt to changes in seasonal demand for child care and other services. Enrollments at centers and before- and after-school sites are generally higher in the spring and fall back-to-school period and lower during the summer and calendar year-end holidays when families may be on vacation or utilizing alternative child care arrangements. As a result, revenue at centers and sites may decline during the third quarter, which overlaps with most of the summer season. To adapt to the changes in seasonal demand, centers offer summer programs and Champions offers day camps for school-age children during the summer and calendar year-end holidays.

Key Performance Metrics

Total centers and sites

We measure and track the number of centers and sites because, as our number of centers and sites grow, it highlights our geographic expansion and potential growth in revenue. We believe this information is useful to investors as an indicator of revenue growth and operational expansion and can be used to measure and track our performance over time. We define the number of centers as the number of centers at the beginning of the period plus openings and acquisitions, minus any permanent closures for the period. A permanently closed center is a center that has ceased operations as of the end of the reporting period and management does not intend on reopening the center. We define the number of sites as total sites that were operational in the last month of the period.


	March 29,		December 28,		March 30,		December 30,
	2025		2024		2024		2023
Early childhood education centers		1,582		1,574		1,563		1,557
Before- and after-school sites		1,038		1,025		950		948
Total centers and sites		2,620		2,599		2,513		2,505

As of March 29, 2025, we operated 1,582 early childhood education centers with a center capacity for 211,767 children as compared to 1,563 early childhood education centers as of March 30, 2024, with a center capacity for 210,012 children. During the three months ended March 29, 2025, total centers increased by eight due to acquiring five centers and opening five centers, partially offset by two permanent center closures. During the three months ended March 30, 2024, total centers increased by six due to acquiring six centers and opening four centers, partially offset by four permanent center closures.

As of March 29, 2025, we operated 1,038 before- and after-school sites, an increase of 88 sites from 950 before- and after-school sites as of March 30, 2024. Total before- and after-school sites increased by 13 during the three months ended March 29, 2025 due to opening 19 sites, partially offset by six site closures. Total before- and after-school sites increased by two during the three months ended March 30, 2024 as a result of opening 12 sites, partially offset by 10 site closures.

Average weekly ECE FTEs

Average weekly ECE full-time enrollment (“FTEs”) is a measure of the number of full-time children enrolled and charged tuition weekly in our centers. We calculate average weekly ECE FTEs based on weighted averages; for example, an enrolled full-time child equates to one average weekly ECE FTE, while a child enrolled for three full days equates to 0.6 average weekly ECE FTE. This

metric is used by management and we believe is useful to investors as it is the key driver of revenue generated and variable costs incurred in our operations.


	Three Months Ended
	March 29,		March 30,
	2025		2024
Average weekly ECE FTEs		144,076		145,180

Average weekly ECE FTEs for the three months ended March 29, 2025 decreased by 1,104, or 0.8%, as compared to the three months ended March 30, 2024 primarily due to lower FTEs at same-centers and closed centers, partially offset by FTEs at new and acquired centers.

ECE same-center occupancy

ECE same-center occupancy is a measure of the utilization of center capacity. We define same-center to be centers that have been operated by us for at least 12 months as of the period end date or, in other words, centers that are starting their second year of operation. Excluded from same-centers are any closed centers at the end of the reporting period and any new or acquired centers that have not yet met the same-center criteria. We calculate ECE same-center occupancy as the average weekly ECE same-center full-time enrollment divided by the total of the ECE same-centers’ capacity during the period. Center capacity is determined by regulatory and operational parameters and can fluctuate due to changes in these parameters, such as changing center structures to meet the demands of enrollment or changes in regulatory standards. This metric is used by management and we believe is useful to investors as it measures the utilization of our centers’ capacity in generating revenue.

ECE same-center occupancy decreased by 50 basis points for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024 primarily due to lower enrollment at same-centers.

ECE same-center revenue

ECE same-center revenue is revenues earned from centers that have been operated by us for at least 12 months as of the period end date and is a measure used by management to attribute a portion of our revenue to mature centers as compared to new or acquired centers. This metric is used by management and we believe is useful to investors as it highlights trends in our core operating performance. The following table is in thousands.


	Three Months Ended
	March 29,		March 30,
	2025		2024
ECE same-center revenue	$	606,357	$	597,746

ECE same-center revenue increased by $8.6 million, or 1.4%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. ECE same-center revenue growth of $4.1 million, or 0.7%, was driven by centers that were classified as same-centers as of both March 29, 2025 and March 30, 2024. The remaining $4.5 million increase in ECE same-center revenue growth was driven by the net impact of new and acquired centers not yet classified as same-centers as of March 30, 2024 and center closures as of March 29, 2025.

Components of Results of Operations

Revenue

Our revenue is derived primarily from tuition charged for providing early childhood education and care services at our centers and sites. The majority of tuition is paid by individual families and may be partially subsidized by amounts received from government

agencies or employer sponsors. Subsidy revenue from government agencies was $240.1 million and $215.8 million during the three months ended March 29, 2025 and March 30, 2024, respectively.

Cost of services (excluding depreciation and impairment)

Our cost of services includes the direct costs related to the operation of our centers and sites and excludes depreciation and impairment. Cost of services consists primarily of personnel costs, rent, food, costs of operating and maintaining facilities, taxes and licenses, marketing, transportation, classroom and office supplies, and insurance. Offsetting certain center operating expenses are reimbursements from federal, state, and local agencies.

Depreciation and amortization

Our depreciation and amortization includes depreciation relating to centers and sites, field management, and corporate facilities as well as amortization related to finance lease right-of-use assets and definite-lived intangibles, such as client relationships and trade names and trademarks.

Selling, general, and administrative expenses

Selling, general, and administrative expenses include costs, primarily personnel related, associated with field management, corporate oversight, support of our centers and sites, and stock-based compensation.

Impairment losses

Our impairment losses relate to property and equipment, operating right-of-use assets, and definite-lived intangible assets.

Interest expense

Interest expense includes long-term debt interest, gain or loss on interest rate derivatives, amortization of debt issuance costs, and gain or loss on extinguishment of debt.

Interest income

Interest income includes interest earned on cash held in interest-bearing accounts.

Other expense (income), net

Other expense (income), net includes sub-lease income, miscellaneous insurance proceeds, contract settlements, and realized and unrealized gains and losses related to investment trust assets.

Income tax expense

Income taxes primarily consist of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, differences between the United States generally accepted accounting principles (“GAAP”) and tax income and deductions, and the tax effect from uncertain tax positions, as applicable.

Factors Affecting the Comparability of our Results of Operations

As a result of certain factors, our historical results of operations may not be comparable from period to period and may not be comparable to our financial results of operations in future periods. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.

IPO and Related Transactions

In October 2024, our IPO was completed. Net proceeds from the IPO were primarily utilized to repay $608.0 million of outstanding principal on our first lien term loan (“First Lien Term Loan Facility”), which provided us the ability to enter into a repricing amendment to the credit agreement, dated as of June 12, 2023 (as subsequently amended and restated) (the “Credit Agreement”) to reduce the interest rates on our senior secured credit facilities. Additionally, we have incurred expenses during our transition to a

public company that we had not previously incurred as a private company, including costs associated with public company reporting requirements of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), which have impacted our results of operations.

Our IPO, as well as the transactions we entered into in connection with our IPO, have affected the comparability of our operating results for the periods presented and are expected to have an impact on the comparability of future periods. Refer to Note 13 and Note 17 within our audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2024 for further information.

COVID-19 Related Stimulus

During 2020 and 2021, the United States government approved several incremental stimulus funding programs for ECE providers in response to the coronavirus disease 2019 (“COVID-19”) pandemic, and as a result, we have received grants in the form of revenue or cost reimbursements (“COVID-19 Related Stimulus”). We recognized $0.7 million and $24.1 million during the three months ended March 29, 2025 and March 30, 2024, respectively, in funding for reimbursement of center operating expenses in cost of services (excluding depreciation and impairment). The federal programs funding the COVID-19 Related Stimulus were required to distribute all stimulus funding for stabilization of the child care industry by December 31, 2024, and we do not expect to receive a material amount of funding after that date. The variability of funding provided by COVID-19 Related Stimulus has impacted the comparability of our operating results for the periods presented, and the conclusion of the programs will have an impact on the comparability of future periods.

The Employee Retention Credit (“ERC”), established by the Coronavirus Aid, Relief and Economic Security Act and extended and expanded by several subsequent governmental acts, allows eligible businesses to claim a per employee payroll tax credit based on a percentage of qualified wages, including health care expenses, paid during calendar year 2020 through September 2021. During the fiscal year ended December 31, 2022, we applied for ERC for qualified wages and benefits paid throughout the fiscal years ended January 1, 2022 and January 2, 2021. Reimbursements of $62.0 million in cash tax refunds for ERC claimed, along with $2.3 million in interest income, were received during the fiscal year ended December 30, 2023. Due to the unprecedented nature of ERC legislation and the changing administrative guidance, not all of the ERC reimbursements received have met our recognition criteria. During the second quarter of the fiscal year ended December 28, 2024, we recognized $23.4 million of ERC in cost of services (excluding depreciation and impairment), along with $0.5 million in interest income. No ERC was recognized during the three months ended March 29, 2025 and March 30, 2024. The timing in recognition of the remaining deferred ERC liabilities will have an impact on the comparability of future periods.

Results of Operations

We operate as a single operating segment to reflect the way our chief operating decision maker reviews and assesses the performance of the business. Refer to Note 1 and Note 16 of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, and Note 1 and Note 23 of our audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2024 for additional information regarding the Company's accounting policies and segment disclosures. The period-to-period comparisons below of financial results are not necessarily indicative of future results.

The following table sets forth our results of operations including as a percentage of revenue for the three months ended March 29, 2025 and March 30, 2024 (in thousands, except where otherwise noted):


	Three Months Ended
	March 29, 2025				March 30, 2024
Revenue	$	668,244			$	654,670
Costs and expenses:
Cost of services (excluding depreciation and impairment)		516,188		77.2%		497,694		76.0%
Depreciation and amortization		29,977		4.5%		28,540		4.4%
Selling, general, and administrative expenses		71,727		10.7%		90,455		13.8%
Impairment losses		1,510		0.2%		4,362		0.7%
Total costs and expenses		619,402		92.7%		621,051		94.9%
Income from operations		48,842		7.3%		33,619		5.1%
Interest expense		20,108		3.0%		36,420		5.6%
Interest income		(659	)	(0.1%)		(2,108	)	(0.3%)
Other expense (income), net		398		0.1%		(3,284	)	(0.5%)
Income before income taxes		28,995		4.3%		2,591		0.4%
Income tax expense		7,838		1.2%		4,342		0.7%
Net income (loss)	$	21,157		3.2%	$	(1,751	)	(0.3%)
Net income (loss) per common share:
Basic	$	0.18			$	(0.02	)
Diluted	$	0.18			$	(0.02	)
Weighted average number of common shares outstanding:
Basic		118,239				90,366
Diluted		118,321				90,366

Comparison of the Three Months Ended March 29, 2025 and March 30, 2024

Revenue


	Three Months Ended				Change
	March 29, 2025		March 30, 2024		Amount		%
Early childhood education centers	$	615,007	$	605,283	$	9,724		1.6	%
Before- and after-school sites		53,237		49,387		3,850		7.8	%
Total revenue	$	668,244	$	654,670	$	13,574		2.1	%

Total revenue increased by $13.6 million, or 2.1%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024.

Revenue from early childhood education centers increased by $9.7 million, or 1.6%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024, of which approximately 2% was from higher tuition rates, partially offset by slightly lower enrollment.

The increase in revenue from early childhood education centers was primarily driven by $8.6 million higher ECE same-center revenue. Additionally, revenue from new and acquired centers not yet classified as same-centers increased by $2.0 million during the three months ended March 29, 2025, partially offset by center closures.

Revenue from before- and after-school sites increased by $3.9 million, or 7.8%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024 primarily due to opening new sites.

Cost of services (excluding depreciation and impairment)

Cost of services (excluding depreciation and impairment) increased by $18.5 million, or 3.7%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. This increase was driven by a $10.7 million decrease in reimbursements from government assistance, primarily related to the conclusion of certain COVID-19 Related Stimulus funding. The increase was also attributable to $4.7 million higher personnel costs due to increased wage rates, partially offset by lower grant-related bonuses and labor hours. Additionally, rent expense increased by $4.0 million primarily due to new and acquired centers.

Depreciation and amortization

Depreciation and amortization increased by $1.4 million, or 5.0%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. This increase was primarily driven by higher depreciation expense as a result of assets placed into service from new and acquired centers as well as from capital expenditures in fiscal 2024.

Selling, general, and administrative expenses

Selling, general, and administrative expenses decreased by $18.7 million, or 20.7%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. This decrease was primarily driven by lower stock-based compensation expense and bonus expense of $16.9 million due to the March 2024 distribution to holders of Class B profit interest units (“PIUs”) of KC Parent, LP (“KC Parent”), our direct parent prior to our IPO, and a related bonus to holders of restricted stock units (“RSUs”) and stock options during the three months ended March 30, 2024, partially offset by expense from additional awards granted under the 2022 Incentive Award Plan in October 2024 and March 2025.

Impairment losses

Impairment losses decreased by $2.9 million, or 65.4%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. This decrease was driven by $2.0 million lower right-of-use asset impairment and $0.9 lower fixed asset impairment from fewer centers triggering the need for an impairment assessment during the three months ended March 29, 2025 and fewer centers impaired as a result of higher cash flow projections.

Interest expense

Interest expense decreased by $16.3 million, or 44.8%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. This decrease was primarily driven by lower outstanding principal and interest rates on the First Lien Term Loan Facility as a result of the October 2024 repayment and repricing amendment executed in conjunction with the IPO.

Interest income

Interest income decreased by $1.4 million, or 68.7%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. This decrease was primarily driven by lower cash balances in interest-bearing accounts held at lower average interest rates.

Other expense (income), net

Other expense (income), net increased by $3.7 million, or 112.1%, for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. This increase was primarily due to a $2.1 million net change in realized and unrealized holding losses on deferred compensation plan investment trust assets. The increase was also attributable to $1.5 million in gains recognized on miscellaneous insurance claims during the three months ended March 30, 2024.

Income tax expense

Income tax expense increased by $3.5 million for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024. The effective tax rate was 27.0% for the three months ended March 29, 2025 as compared to 167.6% for the three months ended March 30, 2024. Compared to the statutory rate, the difference in the effective tax rate for the three months ended March 29, 2025 was primarily due to state income taxes. Compared to the statutory rate, the difference in the effective tax rate for the

three months ended March 30, 2024 was primarily driven by tax expense from nondeductible stock-based compensation and state income taxes.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with the United States generally accepted accounting principles (“GAAP”), we also provide the below non-GAAP financial measures. EBIT, EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per common share (collectively referred to as the “non-GAAP financial measures”) are not presentations made in accordance with GAAP, and should not be considered as an alternative to net income or loss, income or loss from operations, or any other performance measure in accordance with GAAP, or as an alternative to cash provided by operating activities as a measure of our liquidity. Consequently, our non-GAAP financial measures should be considered together with our consolidated financial statements, which are prepared in accordance with GAAP.

We present EBIT, EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per common share because we consider them to be important supplemental measures of our performance and believe they are useful to securities analysts, investors, and other interested parties. Specifically, adjusted EBITDA and adjusted net income allow for an assessment of our operating performance without the effect of charges that do not relate to the core operations of our business.

EBIT, EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per common share have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•

they do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on indebtedness;

•

they do not reflect income tax expense or the cash requirements for income tax liabilities;

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will have to be replaced in the future, and EBIT, EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per common share do not reflect cash requirements for such replacements;

•

they do not reflect our cash used for capital expenditures or contractual commitments;

•

they do not reflect changes in or cash requirements for working capital; and

•

other companies, including other companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.

EBIT, EBITDA, and Adjusted EBITDA

EBIT is defined as net income (loss) adjusted for interest and income tax expense. EBITDA is defined as EBIT adjusted for depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for impairment losses, stock-based compensation, management and advisory fee expenses, acquisition related costs, non-recurring distribution and bonus expense, COVID-19 Related Stimulus, net, and other costs because these charges do not relate to the core operations of our business. We present EBIT, EBITDA, and adjusted EBITDA because we consider them to be important supplemental measures of our performance and believe they are useful to securities analysts, investors, and other interested parties. We believe adjusted EBITDA is helpful to investors in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.

The following table shows EBIT, EBITDA, and adjusted EBITDA for the periods presented, and the reconciliation to its most comparable GAAP measure, net income (loss), for the periods presented (in thousands):


	Three Months Ended
	March 29,			March 30,
	2025			2024
Net income (loss)	$	21,157		$	(1,751	)
Add back:
Interest expense		20,108			36,420
Interest income		(659	)		(2,108	)
Income tax expense		7,838			4,342
EBIT	$	48,444		$	36,903
Add back:
Depreciation and amortization		29,977			28,540
EBITDA	$	78,421		$	65,443
Add back:
Impairment losses (1)		1,510			4,362
Stock-based compensation (2)		4,073			(105	)
Management and advisory fee expenses (3)		—			1,216
Acquisition related costs (4)		—			16
Non-recurring distribution and bonus expense (5)		—			19,287
COVID-19 Related Stimulus, net (6)		(663	)		(19,494	)
Other costs (7)		210			3,715
Adjusted EBITDA

Three Months Ended

ECE same-center occupancy