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]