Kindercare Learning Companies, Inc.(KLC) - 2025 Q1 - Quarterly Results

Q1 2025 Financial & Operational Highlights KinderCare reported moderate revenue growth in Q1 2025, with strong operational execution driving significant increases in net income and adjusted EBITDA, alongside strategic expansion into new states and partnerships Overall Performance and Strategic Developments KinderCare reported moderate revenue growth in Q1 2025, but strong operational execution led to significant year-over-year increases in net income and adjusted EBITDA. The company expanded its footprint into its 41st state, Idaho, and grew its center count through new Crème School openings and expanded employer partnerships - CEO Paul Thompson noted that despite delayed enrollment decisions across the industry, the company performed well, with operating execution driving stronger net income and adjusted EBITDA growth than revenue growth would suggest[2] - The company expanded its national footprint by entering Idaho, its 41st state, and opened new centers for its premium Crème School brand, while also expanding partnerships with employers[2] Q1 2025 Key Financial Metrics | Metric | Value ($ millions) | | :--- | :--- | | Revenue | $668.2 | | Income from Operations | $48.8 | | Net Income | $21.2 | | Net Income per Share (Diluted) | $0.18 | | Adjusted EBITDA | $83.6 | | Adjusted Net Income | $27.0 | | Adjusted Net Income per Share (Diluted) | $0.23 | - As of March 29, 2025, the company operated 1,582 early childhood education centers and 1,038 before- and after-school sites[8] Financial Performance Analysis The company demonstrated improved financial performance in Q1 2025, marked by revenue growth driven by tuition increases and new site openings, and substantial profitability gains due to reduced expenses and lower interest costs Revenue Analysis Total revenue for Q1 2025 increased by 2.1% year-over-year to $668.2 million. This growth was driven by a 1.6% increase from early childhood education centers, primarily due to higher tuition rates, and a 7.8% increase from before- and after-school sites, fueled by the opening of new locations Revenue by Segment (Q1 2025 vs Q1 2024) | Segment | Q1 2025 Revenue ($ millions) | Q1 2024 Revenue ($ millions) | YoY Change ($ millions) | YoY % Change | Key Driver | | :--- | :--- | :--- | :--- | :--- | :--- | | Early Childhood Education Centers | $617.7 | $608.0 | +$9.7 | +1.6% | Higher tuition rates, offset by lower enrollment | | Before- and After-School Sites | $54.1 | $50.2 | +$3.9 | +7.8% | Opening new sites | | Total Revenue | $668.2 | $654.7 | +$13.6 | +2.1% | | Profitability Analysis Profitability improved substantially in Q1 2025. Income from operations grew 45.3% to $48.8 million, largely due to a significant reduction in stock-based compensation and bonus expenses compared to the prior year. The company reported a net income of $21.2 million, a stark turnaround from a net loss of $1.8 million in Q1 2024, also benefiting from lower interest expenses - Income from operations increased by $15.2 million (45.3%) YoY. This was primarily driven by a $16.9 million decrease in stock-based compensation and bonus expenses related to a 2024 distribution. The increase was partially offset by $10.7 million less in government assistance as COVID-19 stimulus funding concluded[5] - The company shifted from a net loss of $1.8 million in Q1 2024 to a net income of $21.2 million in Q1 2025. This $22.9 million improvement was driven by higher operating income and a $16.3 million decrease in interest expense due to debt repayment and repricing[6] Profitability Comparison (in thousands) | Metric | Q1 2025 ($ thousands) | Q1 2024 ($ thousands) | Change ($ thousands) | | :--- | :--- | :--- | :--- | | Income from operations | $48,842 | $33,619 | +$15,223 | | Net income (loss) | $21,157 | $(1,751) | +$22,908 | | Diluted EPS | $0.18 | $(0.02) | +$0.20 | Non-GAAP Performance On a non-GAAP basis, the company demonstrated strong performance. Adjusted EBITDA increased 12.2% to $83.6 million, and Adjusted Net Income grew significantly to $27.0 million from $10.3 million in the prior-year quarter. These figures exclude items like certain stock-based compensation, impairment losses, and the net effect of COVID-19 stimulus Non-GAAP Performance (Q1 2025 vs Q1 2024) | Metric | Q1 2025 ($ millions) | Q1 2024 ($ millions) | YoY Change | | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $83.6 | $74.4 | +12.2% | | Adjusted Net Income | $27.0 | $10.3 | +162% | | Adjusted Diluted EPS | $0.23 | $0.11 | +$0.12 | - Key adjustments to arrive at Adjusted EBITDA included adding back $1.5 million in impairment losses and $4.1 million in stock-based compensation, while subtracting a net $0.7 million related to COVID-19 stimulus[27] Financial Position and Cash Flow KinderCare maintained a strong liquidity position in Q1 2025, with increased cash from operations primarily utilized for strategic investments in property, equipment, and acquisitions Balance Sheet & Liquidity As of March 29, 2025, KinderCare maintained a solid liquidity position with $131.3 million in cash and cash equivalents and an additional $207.4 million available through its revolving credit facility. Total assets increased slightly to $3.72 billion from $3.65 billion at the end of fiscal 2024 - The company's liquidity as of March 29, 2025, consisted of $131.3 million in cash and cash equivalents, plus $207.4 million of available borrowing capacity under its revolving credit facility[9] Key Balance Sheet Items (in thousands) | Account | March 29, 2025 ($ thousands) | December 28, 2024 ($ thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $131,294 | $62,336 | | Total Assets | $3,718,058 | $3,645,467 | | Total Liabilities | $2,833,175 | $2,780,958 | | Total Shareholders' Equity | $884,883 | $864,509 | Cash Flow Summary In Q1 2025, the company generated $98.4 million in cash from operating activities, a significant increase from $64.1 million in the prior-year period. This cash was primarily used to fund $28.4 million in net investments, including capital expenditures and acquisitions, with minimal cash used for financing activities Cash Flow Summary (in thousands) | Activity | Q1 2025 ($ thousands) | Q1 2024 ($ thousands) | | :--- | :--- | :--- | | Cash provided by operating activities | $98,444 | $64,119 | | Cash used in investing activities | $(28,388) | $(31,387) | | Cash used in financing activities | $(1,097) | $(60,313) | | Net change in cash | $68,959 | $(27,581) | - Net investments totaled $28.4 million, which included $23.4 million for property and equipment and $6.1 million for acquisitions[10] 2025 Outlook The company reaffirmed its full-year 2025 financial guidance, projecting continued revenue growth and strong adjusted EBITDA performance Full Year 2025 Guidance The company reiterated its full-year guidance for fiscal 2025, projecting revenue between $2.75 billion and $2.85 billion and adjusted EBITDA between $310 million and $325 million Full Year 2025 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenue | $2.75 billion to $2.85 billion | | Adjusted EBITDA | $310 million to $325 million | | Adjusted Net Income per Common Share, Diluted | $0.75 to $0.85 | Appendix: Financial Statements & Reconciliations The appendix provides detailed unaudited financial statements, including balance sheets, statements of operations, cash flows, and reconciliations of non-GAAP financial measures for Q1 2025 Condensed Consolidated Balance Sheets The balance sheet shows total assets of $3.72 billion and total liabilities of $2.83 billion as of March 29, 2025. Key assets include $1.13 billion in goodwill and $1.38 billion in operating lease right-of-use assets. Key liabilities include $0.92 billion in long-term debt and $1.32 billion in long-term operating lease liabilities Condensed Consolidated Balance Sheets (Unaudited) (in thousands) | | March 29, 2025 (in thousands) | December 28, 2024 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Total current assets | $284,677 | $214,773 | | Property and equipment, net | $417,030 | $418,524 | | Goodwill | $1,126,382 | $1,119,714 | | Operating lease right-of-use assets | $1,381,493 | $1,373,064 | | Total assets | $3,718,058 | $3,645,467 | | Liabilities and Shareholders' Equity | | | | 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 | | Total liabilities | $2,833,175 | $2,780,958 | | Total shareholders' equity | $884,883 | $864,509 | Condensed Consolidated Statements of Operations For the three months ended March 29, 2025, the company generated $668.2 million in revenue and reported a net income of $21.2 million. This compares to revenue of $654.7 million and a net loss of $1.8 million in the same period of 2024. The cost of services as a percentage of revenue increased slightly from 76.0% to 77.2%, while SG&A expenses decreased significantly from 13.8% to 10.7% of revenue Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except per share data) | | Three Months Ended March 29, 2025 (in thousands) | Three Months Ended March 30, 2024 (in thousands) | | :--- | :--- | :--- | | Revenue | $668,244 | $654,670 | | Cost of services (excluding depreciation) | $516,188 | $497,694 | | Selling, general, and administrative expenses | $71,727 | $90,455 | | Income from operations | $48,842 | $33,619 | | Interest expense | $20,108 | $36,420 | | Net income (loss) | $21,157 | $(1,751) | | Net income (loss) per common share, diluted | $0.18 | $(0.02) | Condensed Consolidated Statements of Cash Flows For Q1 2025, net cash provided by operating activities was $98.4 million. Cash used in investing activities was $28.4 million, primarily for property/equipment purchases and acquisitions. Cash used in financing activities was $1.1 million. This resulted in a net increase in cash of $69.0 million for the quarter Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) | | Three Months Ended March 29, 2025 (in thousands) | Three Months Ended March 30, 2024 (in thousands) | | :--- | :--- | :--- | | Cash provided by operating activities | $98,444 | $64,119 | | Cash used in investing activities | $(28,388) | $(31,387) | | 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 | Reconciliation of Non-GAAP Measures The company provides reconciliations for non-GAAP measures to their most comparable GAAP counterparts. For Q1 2025, Net Income of $21.2 million was reconciled to Adjusted EBITDA of $83.6 million by adjusting for interest, taxes, D&A, and other items. Similarly, Net Income was reconciled to Adjusted Net Income of $27.0 million Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | | Three Months Ended March 29, 2025 (in thousands) | Three Months Ended March 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net income (loss) | $21,157 | $(1,751) | | Interest, Taxes, D&A | $57,264 | $67,194 | | EBITDA | $78,421 | $65,443 | | Adjustments | $5,130 | $8,997 | | Adjusted EBITDA | $83,551 | $74,440 | Reconciliation of Net Income (Loss) to Adjusted Net Income (in thousands) | | Three Months Ended March 29, 2025 (in thousands) | Three Months Ended March 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net income (loss) | $21,157 | $(1,751) | | Pre-tax adjustments | $7,439 | $11,281 | | Adjusted income tax expense | $(9,404) | $(3,580) | | Adjusted net income | $27,030 | $10,292 | - Significant adjustments in Q1 2024 that were not present or were smaller in Q1 2025 include a $19.3 million non-recurring distribution and bonus expense and a net COVID-19 stimulus impact of $(19.5) million[27][28][29]