I was excited to see KinderCare Learning Companies, Inc. (NYSE: KLC ) go public with its IPO last October. I sent my kids there as preschoolers, and the family had a great experience for a reasonable cost. Unfortunately, in aDr. Duru has blogged about financial markets since the year 2000. A veteran of the dot-com bubble and bust, the financial crisis, and the coronavirus pandemic, he fully appreciates the value in trading and investing around the extremes of market behavior. In this spirit, his blog "One-T ...

Core Viewpoint - KinderCare Learning Companies, Inc. is under investigation for potential violations of federal securities laws and unlawful business practices following disappointing financial results and a significant drop in share price [1][4]. Group 1: Company Overview - KinderCare conducted its initial public offering (IPO) on October 9, 2024, selling 24 million shares at a price of $24.00 per share [3]. - The company reported an operational loss of $89.3 million for the fourth quarter of 2024, a stark contrast to an operational income of $48.7 million in the same quarter of the previous year [4]. Group 2: Financial Performance - The operational loss was attributed to increased equity-based compensation expenses and lower COVID-19 stimulus reimbursements [4]. - KinderCare's full-year guidance for 2025 fell short of consensus estimates, leading to a significant decline in share price [4]. - Following the announcement of the financial results, KinderCare shares dropped by $3.92, or approximately 22%, from $17.68 to $13.76 [4]. Group 3: Legal Investigation - The law firm Kirby McInerney LLP is investigating potential claims against KinderCare regarding possible violations of federal securities laws [1]. - The investigation may involve certain officers of KinderCare in addition to the company itself [1].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 2024 OR ☐ 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) (State or other jurisdiction of inco ...

Financial Data and Key Metrics Changes - Total revenues grew by 5% year-over-year, reaching $2.7 billion, with adjusted EBITDA increasing by 12% to $298 million [21][34] - Adjusted EPS for the fourth quarter was reported at $0.09, with an adjusted EBITDA margin of 10%, remaining flat year-over-year [34][38] - Average weekly full-time enrollments increased slightly to 145,000, with occupancy growing by 90 basis points to 69.8% [22][24] Business Line Data and Key Metrics Changes - Early education centers saw a revenue increase of 4% year-over-year, totaling $593 million, with same center revenue up by 3% [35] - The Champions business experienced a 12% revenue growth, totaling $54 million, with the number of sites increasing by 8% to 1,025 [36] - The portfolio performed well overall, with a same center revenue increase of 5% to $2.4 billion [21][19] Market Data and Key Metrics Changes - Demand for quality early childhood education in the US continues to exceed supply, presenting growth opportunities for KinderCare [9][10] - The top five providers in the early childhood education market account for only 5% of the total market, indicating significant growth potential in a fragmented industry [11] Company Strategy and Development Direction - KinderCare aims to expand access to high-quality childcare through existing locations, new centers, and acquisitions, leveraging its scale and brand recognition [10][12] - The company is focused on enhancing its offerings to meet the needs of working families, including partnerships with over 900 employers for customized childcare benefits [14][29] - The strategic focus includes maintaining high teacher retention rates and fostering a supportive work culture to ensure continuity of care [24][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued bipartisan support for early childhood education funding, which is crucial for the company's growth [16][62] - The outlook for 2025 includes revenue guidance of $2.75 billion to $2.85 billion, representing a growth of 3% to 7% over the prior year [45] - Adjusted EBITDA is expected to range from $310 million to $325 million, driven by growth, cost controls, and expanding scale [45] Other Important Information - The company opened 77 new Champion sites in 2024 and plans to continue this momentum in 2025 [28] - KinderCare's revenue from subsidy funding represented about 35% of total revenue for 2024, with 20% coming from employer partnerships [26][27] - The company has a robust pipeline for growth, including new employer-sponsored centers and expansions into new geographies [31] Q&A Session Summary Question: How is the first quarter trending relative to guidance? - Management indicated that the first quarter is tracking in line with annual guidance, with $4.6 million of revenue from acquisitions not included in the same center number [56][57] Question: What percentage of revenue is tied to US federal government funding? - Approximately 35% of revenue comes from the Child Care and Development Block Grant, with bipartisan support expected to continue [61][62] Question: What is the playbook for lower-performing centers? - Different strategies are employed based on occupancy levels, focusing on engagement and retention to improve performance in lower quintile centers [67][68] Question: What factors could influence revenue and margin guidance? - Revenue growth will depend on occupancy rates and tuition adjustments, while cost controls will also play a significant role in EBITDA margins [70][74] Question: What are the expectations for B2B employer-sponsored business growth? - Similar growth rates are expected for new center openings tied to employers, with potential for increased tuition benefits [81][82] Question: Why is occupancy expected to remain flat? - Management is cautious about projecting occupancy growth despite positive trends, focusing on operational practices and tools that are still gaining traction [100][101] Question: Are acquisitions included in the revenue guidance? - The revenue guidance includes a 1% to 2% contribution from future tuck-in acquisitions, but specific volume guidance is not provided [102][103]

Financial Data and Key Metrics Changes - Total revenues grew 5% year-over-year to $2.7 billion, with adjusted EBITDA increasing by 12% to $298 million [21][34] - Adjusted EPS for the fourth quarter was $0.09, with an adjusted EBITDA margin of 10%, flat year-over-year [34][38] - Same center revenue increased by 5% to $2.4 billion, with average weekly full-time enrollments slightly up to 145,000 [21][22] Business Line Data and Key Metrics Changes - Early education centers saw a 4% revenue growth year-over-year to $593 million, with same center revenue up 3% [35] - Champions business revenue expanded by 12% in the fourth quarter, totaling $54 million, with 1,025 sites, an 8% increase from the previous year [36][20] Market Data and Key Metrics Changes - Demand for quality early childhood education in the US continues to exceed supply, presenting growth opportunities [9][10] - Occupancy rates improved by 90 basis points to 69.8%, with expectations for continued growth [22][40] Company Strategy and Development Direction - KinderCare aims to expand access to high-quality childcare through new centers and acquisitions, leveraging its scale and brand recognition [10][11] - The company is focused on enhancing its offerings to meet the needs of families and employers, including customized childcare benefits [14][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued bipartisan support for early childhood education funding, which is crucial for growth [16][62] - The outlook for 2025 includes revenue guidance of $2.75 billion to $2.85 billion, representing a 3% to 7% increase, with adjusted EBITDA expected to range from $310 million to $325 million [45][46] Other Important Information - Approximately 35% of total revenue in 2024 came from subsidy funding, with 20% from employer partnerships [26][27] - The company opened 77 new Champion sites in 2024 and plans to continue this momentum in 2025 [28] Q&A Session Summary Question: How is the first quarter trending relative to guidance? - Management indicated that the first quarter is tracking in line with annual guidance, with $4.6 million of revenue from acquisitions in Q4 [56][57] Question: What percentage of revenue is tied to US federal government funding? - Approximately 35% of revenue comes from the Child Care and Development Block Grant, with bipartisan support expected to continue [61][62] Question: What are the expectations for occupancy rates in lower quintiles? - Management noted that engagement with teachers and families is key to improving occupancy in lower-performing centers [68][69] Question: What factors could influence revenue and margin guidance? - Revenue growth will depend on occupancy rates and cost controls, with potential upside from acquisitions if market conditions remain favorable [70][74] Question: How is the B2B employer-sponsored business performing? - Occupancy rates in employer-sponsored centers are trending in the high 70s, with opportunities for further expansion [78][79] Question: What is the rationale for expecting flat occupancy in 2025? - Management emphasized the need for operational practices to gain traction before expecting significant occupancy increases [100][101] Question: Are acquisitions included in the revenue guidance? - The revenue guidance includes a 1% to 2% contribution from acquisitions, but specific volume guidance is not provided [102][103]

Revenue Performance - Total revenue for Q4 2024 increased by $29.0 million, or 4.7%, to $647.0 million compared to $618.0 million in Q4 2023[5] - Revenue from early childhood education centers rose by $23.0 million, or 4.0%, driven by a 3% increase in tuition rates and a 1% increase in enrollment[5] - Revenue from before- and after-school sites increased by $6.0 million, or 12.5%, primarily due to new site openings and increased enrollment[6] - Revenue for the fiscal year ended December 28, 2024, was $2,663,035, an increase of 6.1% from $2,510,182 in the previous year[28] Profitability and Loss - Loss from operations for Q4 2024 was $89.3 million, a significant change from an income of $48.7 million in Q4 2023, largely due to increased equity-based compensation expenses[7] - Net loss for Q4 2024 was $133.6 million, compared to a net income of $14.8 million in Q4 2023, reflecting a $148.4 million change[7] - Net loss for the fiscal year ended December 28, 2024, was $92,840, compared to a net income of $102,558 in the previous year, marking a significant decline[28] - Basic and diluted net loss per common share for the fiscal year ended December 28, 2024, was $(0.96), down from $1.13 in the previous year[28] Adjusted Metrics - Adjusted EBITDA for Q4 2024 increased by $3.1 million, or 4.9%, to $66.0 million, while adjusted net income rose to $10.7 million from $0.1 million in Q4 2023[10] - Adjusted EBITDA for the fiscal year ended December 28, 2024, was $298,123, an increase from $266,382 in the previous year[32] - Adjusted net income for the three months ended December 28, 2024, was $10.7 million, compared to $0.1 million for the same period in 2023, representing a significant increase[33] - Adjusted net income per common share for the fiscal year ended December 28, 2024, was $0.40, up from $0.20 in the previous fiscal year[33] Cash and Financial Position - As of December 28, 2024, the company had $62.3 million in cash and cash equivalents and $184.2 million in available borrowing capacity[12] - Cash provided by operating activities for the fiscal year ended December 28, 2024, was $115,887, a decrease from $303,540 in the previous year[30] - The company incurred interest expenses of $170,539 for the fiscal year ended December 28, 2024, compared to $152,893 in the previous year[28] Company Operations - As of December 28, 2024, the company operated 1,574 early childhood education centers and 1,025 before- and after-school sites[11] - For fiscal year 2025, the company expects revenue to be approximately $2.75 billion to $2.85 billion, with adjusted EBITDA projected at $310 million to $325 million[14] - The fiscal year 2025 outlook includes a 53rd week, contributing an estimated $45 million to $50 million in revenue and $10 million to $12 million in adjusted EBITDA[14] Impairments and Expenses - The company reported a total impairment loss of $10,535 for the fiscal year ended December 28, 2024, down from $13,560 in the previous year[28] - The company recognized $7.4 million in COVID-19 related stimulus funding for the three months ended December 28, 2024, and $63.3 million for the fiscal year[35] - Equity-based compensation expense for the three months ended December 28, 2024, included $113.1 million related to a one-time modification to the PIUs Plan[34] - The company recognized a one-time expense of $14.3 million related to advance distributions to Class B PIU recipients in March 2024[34] Shareholder Information - The weighted average number of common shares outstanding for the fiscal year ended December 28, 2024, was 96,309, an increase from 90,366 in the previous year[28] - The weighted average number of common shares outstanding for the three months ended December 28, 2024, was 114,136,000, compared to 90,366,000 for the same period in 2023[33] - The company completed an initial public offering, generating proceeds of $625,968 during the fiscal year ended December 28, 2024[30] Debt and Financing - The company incurred $3.6 million in transaction costs associated with its incremental first lien term loan during the fiscal year ended December 28, 2024[35] - Loss on extinguishment of long-term debt for the fiscal year ended December 28, 2024, was primarily due to the repayment of $608.0 million on the first lien term loan[34] - The non-GAAP tax rate was 25.8% for both the three months and fiscal years ended December 28, 2024, and December 30, 2023[34]

Core Points - KinderCare Learning Companies has opened applications for the 2025-2026 Kids Scholarship Fund, aimed at supporting alumni from its various brands in pursuing higher education [1][4] - The scholarship program, launched in 2019, has assisted over 100 students, with this year offering up to 20 scholarships of $5,000 each [4] - Eligible applicants must be enrolled in an accredited two- or four-year college for the 2025-2026 school year, with applications accepted until March 3, 2025 [5] Company Overview - KinderCare Learning Companies is a leading provider of early childhood and school-age education, operating nearly 2,500 centers across 40 states and the District of Columbia [6][9] - The company partners with employers to address child care needs, offering customized family care benefits, including on-site care and tuition benefits [7] - KinderCare programs are validated by independent evaluations, ensuring high standards in early learning and child care [8]

Core Thesis - KinderCare Learning Companies, Inc. (NYSE: KLC) is positioned to benefit from strong secular demand as parents increasingly prioritize educational wellbeing for their children [1] Company Analysis - The company is viewed positively due to its potential for long-term growth, driven by a focus on quality education and care [1] - The investment approach emphasizes acquiring undervalued companies with strong fundamentals and holding them for compounding returns [1]

Operational Performance - As of September 28, 2024, KinderCare Learning Companies operated 1,573 early childhood education centers with a capacity for 210,972 children, an increase from 1,551 centers and 211,164 capacity as of September 30, 2023[165][173]. - Average weekly ECE full-time enrollment (FTEs) for the three months ended September 28, 2024 was 143,298, reflecting an increase of 955 FTEs or 0.7% compared to the same period in 2023[177][178]. - Total before- and after-school sites increased to 1,018 as of September 28, 2024, up from 941 sites as of September 30, 2023, representing a growth of 77 sites[174]. - Total centers and sites reached 2,591 as of September 28, 2024, an increase from 2,505 as of December 30, 2023, driven by acquisitions and new openings[173]. Revenue Growth - ECE same-center revenue increased by $68.9 million, or 12.6%, for the three months ended September 28, 2024, totaling $616.7 million compared to $547.8 million in the same period of 2023[183]. - Subsidy revenue from government agencies was $242.6 million for the three months ended September 28, 2024, compared to $201.4 million for the same period in 2023, marking an increase of 20.5%[187]. - Revenue from early childhood education centers increased by $40.5 million, or 6.9%, for the three months ended September 28, 2024, driven by higher tuition rates and increased enrollment[206]. - ECE same-center revenue for the nine months ended September 28, 2024 increased by $188.2 million, or 11.3%, totaling $1.85 billion compared to $1.66 billion for the same period in 2023[185]. - Total revenue increased by $47.0 million, or 7.5%, for the three months ended September 28, 2024, compared to the same period in 2023[205]. - Revenue from before- and after-school sites increased by $6.5 million, or 16.8%, for the three months ended September 28, 2024 compared to the same period in 2023[208]. - Total revenue increased by $123.9 million, or 6.5%, for the nine months ended September 28, 2024 compared to the same period in 2023[218]. - Revenue from early childhood education centers increased by $98.1 million, or 5.5%, for the nine months ended September 28, 2024, with approximately 5% attributed to higher tuition rates[219]. Cost and Expenses - Cost of services (excluding depreciation and impairment) for the three months ended September 28, 2024, was $521.1 million, representing 77.6% of revenue, compared to $468.4 million, or 75.0%, in the same period of 2023[203]. - Total costs and expenses for the nine months ended September 28, 2024, were $1.85 billion, or 91.6% of revenue, compared to $1.67 billion, or 88.0%, in the same period of 2023[203]. - Cost of services (excluding depreciation and impairment) increased by $161.5 million, or 11.9%, for the nine months ended September 28, 2024 compared to the same period in 2023[222]. - Selling, general, and administrative expenses increased by $13.6 million, or 6.1%, for the nine months ended September 28, 2024 compared to the same period in 2023[227]. Income and Profitability - Income from operations for the three months ended September 28, 2024, was $54.4 million, or 8.1% of revenue, down from $58.7 million, or 9.4%, in the same period of 2023[203]. - Net income for the three months ended September 28, 2024, was $14.0 million, or 2.1% of revenue, compared to $16.0 million, or 2.6%, in the same period of 2023[203]. - Net income for the nine months ended September 28, 2024, was $40.7 million, or 2.0% of revenue, down from $87.7 million, or 4.6%, in the same period of 2023[203]. - Adjusted EBITDA for the three months ended September 28, 2024, was $71,356 million, compared to $57,019 million for the same period in 2023, reflecting an increase of approximately 25.2%[240]. - Adjusted net income for the three months ended September 28, 2024, was $4,303 million, compared to a loss of $3,431 million for the same period in 2023, indicating a significant turnaround[243]. - Basic net income per common share for the three months ended September 28, 2024, was $0.15, down from $0.18 in the same period of 2023[243]. Debt and Liquidity - As of September 28, 2024, the company had a total debt of $1,590 million under the First Lien Term Loan Facility and a $160 million First Lien Revolving Credit Facility[250]. - The company expects to meet its liquidity requirements for at least the next 12 months through cash generated from operations and available borrowings[249]. - The company has long-term debt obligations, including interest, of $2.5 billion, with $1.7 billion due after June 2030 when the First Lien Term Loan Facility matures[270]. - The company repaid $608.0 million of outstanding principal on the First Lien Term Loan Facility, reducing the principal balance to $966.8 million[256]. - As of September 28, 2024, cash provided by operating activities was $156.736 million, a decrease of $151.0 million compared to $307.764 million for the nine months ended September 30, 2023[265]. - Cash used in financing activities decreased by $60.7 million to $67.112 million for the nine months ended September 28, 2024, primarily due to proceeds from an incremental first lien term loan[268]. Interest and Tax - Interest expense increased by $5.4 million, or 4.8%, for the nine months ended September 28, 2024 compared to the same period in 2023[229]. - Interest income increased by $1.0 million, or 24.3%, for the nine months ended September 28, 2024 compared to the same period in 2023[230]. - Income tax expense decreased by $11.5 million for the nine months ended September 28, 2024 compared to the same period in 2023[233]. Other Financial Information - The company recognized $14.3 million in one-time expenses related to advance distributions to Class B PIU Recipients in March 2024[244]. - COVID-19 Related Stimulus recognized during the nine months ended September 28, 2024, included $55.9 million in funding for reimbursement of center operating expenses[246]. - Other (income) expense, net increased by $4.0 million, or 231.7%, for the nine months ended September 28, 2024 compared to the same period in 2023[231]. - The amendment to the Credit Agreement in March 2024 increased required quarterly principal payments on the First Lien Term Loan Facility to $4 million from $3.3 million[251]. - As of September 28, 2024, the company had cash, cash equivalents, and restricted cash totaling $137.334 million, down from $188.905 million at the end of the prior year[265]. - The company entered into interest rate swaps with a total notional amount of $800.0 million to hedge interest rate risk on a portion of its variable debt[279]. - As of September 28, 2024, the company was in compliance with all covenants of the Credit Agreement[261].

Revenue Performance - Revenue for Q3 2024 was $671.5 million, an increase of $47.0 million or 7.5% compared to Q3 2023[5] - Revenue from early childhood education centers increased by $40.5 million, or 6.9%, primarily due to higher tuition rates and increased enrollment[6] - Revenue from before- and after-school sites increased by $6.5 million, or 16.8%, driven by new site openings and increased tuition rates[7] - Revenue for the nine months ended September 28, 2024, was $2,016,079,000, representing a 6.6% increase from $1,892,186,000 in the same period of 2023[28] Income and Earnings - Net income for Q3 2024 was $14.0 million, a decrease of $2.0 million or 13.0% from $16.0 million in Q3 2023[8] - Adjusted net income for Q3 2024 was $4.3 million, a significant increase of $7.7 million or 225.4% compared to an adjusted net loss of $3.4 million in Q3 2023[9] - Net income for the nine months ended September 28, 2024, was $40,743,000, a decrease of 53.5% from $87,731,000 in the same period of 2023[30] - Basic and diluted net income per common share for the nine months ended September 28, 2024, was $0.45, down from $0.97 in the prior year[28] - Net income for the three months ended September 28, 2024, was $13.959 million, a decrease of 13.4% compared to $16.036 million for the same period in 2023[32] - Basic net income per common share for the three months ended September 28, 2024, was $0.15, consistent with $0.18 in the same period of 2023[32] Operational Metrics - Income from operations decreased by $4.3 million, or 7.4%, to $54.4 million for Q3 2024 compared to $58.7 million for Q3 2023[8] - Adjusted EBITDA increased by $14.4 million, or 25.1%, to $71.4 million in Q3 2024 compared to $57.0 million in Q3 2023[9] - Adjusted EBITDA for the three months ended September 28, 2024, was $71.356 million, an increase of 25.2% from $57.019 million in the prior year[32] - EBIT for the nine months ended September 28, 2024, was $174.301 million, down 23.6% from $228.352 million for the same period in 2023[32] Costs and Expenses - Cost of services (excluding depreciation and impairment) was $1,518,818,000, accounting for 75.3% of revenue, compared to 71.7% in the prior year[28] - Total costs and expenses for the nine months ended September 28, 2024, were $1,847,499,000, or 91.6% of revenue, up from 88.0% in the previous year[28] - Cash used in investing activities totaled $108,702,000 for the nine months ended September 28, 2024, compared to $96,542,000 in the previous year[30] Cash Flow and Financial Position - The company had $137.2 million in cash and cash equivalents and $104.2 million in available borrowing capacity as of September 28, 2024[12] - Cash provided by operating activities for the nine months ended September 28, 2024, was $156,736,000, a significant decrease from $307,764,000 in the same period of 2023[30] - The company reported a net change in cash of $(19,078,000) for the nine months ended September 28, 2024, contrasting with an increase of $83,436,000 in the same period of 2023[30] Asset and Liability Overview - Total assets increased to $3,722.5 million as of September 28, 2024, compared to $3,653.3 million as of December 30, 2023[24] - Interest expense for the nine months ended September 28, 2024, was $119,806,000, representing 5.9% of revenue, compared to 6.0% in the prior year[28] - The company experienced a loss on extinguishment of long-term debt, netting $895,000 for the nine months ended September 28, 2024[30] Special Items and Adjustments - The company recognized $16.9 million in COVID-19 related stimulus during the three months ended September 28, 2024, compared to $36.9 million in the same period of 2023[33] - Impairment losses for the three months ended September 28, 2024, were $1.257 million, down from $1.776 million in the same period of 2023[32] - Management and advisory fee expenses for the three months ended September 28, 2024, were $1.216 million, unchanged from the same period in 2023[32] - The company incurred $14.3 million in one-time expenses related to advance distributions to certain employees in March 2024[33] - The non-GAAP tax rate was 25.8% for both the three and nine months ended September 28, 2024, and September 30, 2023[33]