# KinderCare Learning Companies, Inc.: Form 10-Q for the period ended Sep 28, 2024

- Company: [KinderCare Learning Companies, Inc.](/companies/klc.md) (CIK 1873529)
- Form: 10-Q
- Filed: 2024-11-21
- Accepted by EDGAR: Nov 21, 2024, 21:15 ET
- Period: 2024-09-28
- Accession: 0000950170-24-129727
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1873529/000095017024129727/klc-20240928.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1873529/000095017024129727/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-06-30 to 2024-09-28 | $671.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-12-31 to 2024-09-28 | $2.02bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2024-06-30 to 2024-09-28 | $65.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-12-31 to 2024-09-28 | $234.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-06-30 to 2024-09-28 | $54.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-12-31 to 2024-09-28 | $168.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-06-30 to 2024-09-28 | $39.5m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2023-12-31 to 2024-09-28 | $119.8m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-06-30 to 2024-09-28 | $4.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-12-31 to 2024-09-28 | $18.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-06-30 to 2024-09-28 | $14.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-12-31 to 2024-09-28 | $40.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-06-30 to 2024-09-28 | $0.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-12-31 to 2024-09-28 | $0.45 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-06-30 to 2024-09-28 | $0.15 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-12-31 to 2024-09-28 | $0.45 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-06-30 to 2024-09-28 | 90,366,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-12-31 to 2024-09-28 | 90,366,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-12-31 to 2024-09-28 | $156.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-12-31 to 2024-09-28 | $94.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-28 | $137.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-28 | $302.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-28 | $3.72bn | us-gaap:Assets |
| Current liabilities | at 2024-09-28 | $504.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-28 | $3.49bn | us-gaap:Liabilities |
| Long-term debt | at 2024-09-28 | $1.50bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-28 | $15.8m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-28 | $235.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,458 characters.

*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 and nine months ended September 28, 2024 and September 30, 2023 included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated financial statements and notes thereto for the fiscal year ended December 30, 2023 filed with the Securities and Exchange Commission (“SEC”) on October 9, 2024, pursuant to Rule 424(b) under the Securities Act ("Prospectus"). 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 the largest private provider of high-quality early childhood education ("ECE") in the United States by center capacity. 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 1,573 early childhood education centers with center capacity for 210,972 children and 1,018 before- and after-school sites located in 40 states and the District of Columbia as of September 28, 2024.

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 initial offering 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, our unaudited condensed consolidated financial statements and notes thereto as of September 28, 2024 have been adjusted to retrospectively reflect the Common Stock Conversion. Refer to Note 1 and Note 18 within the unaudited condensed consolidated interim financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q 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 1% of the over 90,000 K-12 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, the number of open sites may decrease at the end of the second quarter as many sites close temporarily for the summer, and 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, which reflects the seasonal impacts of temporary closures at the beginning of summer.

|  | September 28, 2024 | December 30, 2023 | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Early childhood education centers | 1,573 | 1,557 | 1,551 | 1,553 |
| Before- and after-school sites | 1,018 | 948 | 941 | 788 |
| Total centers and sites | 2,591 | 2,505 | 2,492 | 2,341 |

As of September 28, 2024, we had 1,573 early childhood education centers with a center capacity for 210,972 children as compared to 1,551 early childhood education centers as of September 30, 2023, with a center capacity for 211,164 children. During the nine months ended September 28, 2024, total centers increased by 16 due to acquiring 16 centers and opening 10 centers, partially offset by 10 permanent center closures. During the nine months ended September 30, 2023, total centers decreased by two due to 13 permanent center closures, partially offset by opening nine centers and acquiring two centers.

As of September 28, 2024, we had 1,018 before- and after-school sites, an increase of 77 sites from 941 before- and after-school sites as of September 30, 2023. Total before- and after-school sites increased by 70 during the nine months ended September 28, 2024 due to opening 155 sites, partially offset by 85 site closures. Total before- and after-school sites increased by 153 during the nine months ended September 30, 2023 as a result of opening 204 sites, partially offset by 51 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 September 28, 2024 | September 30, 2023 | Nine Months Ended September 28, 2024 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Average weekly ECE FTEs | 143,298 | 142,343 | 146,532 | 146,387 |

Average weekly ECE FTEs for the three months ended September 28, 2024 increased by 955, or 0.7%, as compared to the three months ended September 30, 2023 primarily due to new centers, partially offset by closed centers.

Average weekly ECE FTEs for the nine months ended September 28, 2024 were relatively consistent with the nine months ended September 30, 2023.

### 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.

|  | Three Months Ended September 28, 2024 | September 30, 2023 | Nine Months Ended September 28, 2024 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| ECE same-center occupancy | 68.6% | 69.8% | 70.2% | 71.5% |

ECE same-center occupancy decreased by 120 basis points for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023 primarily due to the inclusion of Crème School centers acquired in fiscal 2022 in ECE same-center occupancy as of September 28, 2024, partially offset by increased enrollment at same-centers other than Crème School centers.

ECE same-center occupancy decreased by 130 basis points for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023 primarily due to the inclusion of Crème School centers acquired in fiscal 2022 in ECE same-center occupancy as of September 28, 2024.

### 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 and measures the potential for organic growth. The following table is in thousands.

|  | Three Months Ended September 28, 2024 | September 30, 2023 | Nine Months Ended September 28, 2024 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| ECE same-center revenue | $616,728 | $547,847 | $1,848,502 | $1,660,339 |

ECE same-center revenue increased by $68.9 million, or 12.6%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. Crème School centers, acquired in fiscal 2022 and classified as same-centers as of September 28, 2024, accounted for $30.3 million of the ECE same-center revenue growth. Additionally, $22.8 million, or 4.2%, of the ECE same-center revenue growth was driven by centers that were classified as same-centers as of both September 28, 2024 and September 30, 2023, and $11.2 million of the ECE same-center revenue growth was due to the timing of registration fee billing in the third quarter of fiscal 2024 compared to the second quarter of fiscal 2023. The remaining $4.6 million increase in ECE same-center revenue growth was driven by the net impact of new and acquired centers, other than Crème School centers, not yet classified as same-centers as of September 30, 2023 and center closures as of September 28, 2024.

ECE same-center revenue increased by $188.2 million, or 11.3%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. Crème School centers, acquired in fiscal 2022 and classified as same-centers as of September 28, 2024, accounted for $94.1 million of the ECE same-center revenue growth. Additionally, $82.0 million, or 5.0%, of the ECE same-center revenue growth was driven by centers that were classified as same-centers as of both September 28, 2024 and September 30, 2023. The remaining $12.0 million increase in ECE same-center revenue growth was driven by the net impact of new and acquired centers, other than Crème School centers, not yet classified as same-centers as of September 30, 2023 and center closures as of September 28, 2024.

### 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 $242.6 million and $201.4 million during the three months ended September 28, 2024 and September 30, 2023, and $699.8 million and $596.0 million during the nine months ended September 28, 2024 and September 30, 2023, 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, trade names and trademarks, covenants not-to-compete, and software.

### Selling, general, and administrative expenses

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

### 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 financing lease interest.

### Interest income

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

### Other (income) expense, net

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

### Income tax expense (benefit)

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 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.

### 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 $16.9 million and $36.9 million during the three months ended September 28, 2024 and September 30, 2023, and $55.9 million and $145.2 million during the nine months ended September 28, 2024 and September 30, 2023, respectively, in funding for reimbursement of center operating expenses in cost of services (excluding depreciation and impairment), as well as $0.2 million and $1.4 million during the three months ended September 28, 2024 and September 30, 2023, and $0.3 million and $3.0 million during the nine months ended September 28, 2024 and September 30, 2023, respectively, in revenue arising from COVID-19 Related Stimulus. The programs funding the COVID-19 Related Stimulus are required to distribute all stimulus funding by December 31, 2024, and we do not expect future 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 nine months ended September 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 September 28, 2024 and the three and nine months ended September 30, 2023. The timing in recognition of ERC has impacted the comparability of our operating results for the periods presented, and 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. Our accounting policies are described in Note 1 to both our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated annual financial statements included in the Prospectus. 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 September 28, 2024 and September 30, 2023 (in thousands, except where otherwise noted):

|  | Three Months Ended September 28, 2024 |  | September 30, 2023 |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $671,476 |  | $624,468 |  |
| Costs and expenses: |  |  |  |  |
| Cost of services (excluding depreciation and impairment) | 521,093 | 77.6% | 468,422 | 75.0% |
| Depreciation and amortization | 29,641 | 4.4% | 27,069 | 4.3% |
| Selling, general, and administrative expenses | 65,110 | 9.7% | 68,477 | 11.0% |
| Impairment losses | 1,257 | 0.2% | 1,776 | 0.3% |
| Total costs and expenses | 617,101 | 91.9% | 565,744 | 90.6% |
| Income from operations | 54,375 | 8.1% | 58,724 | 9.4% |
| Interest expense | 39,459 | 5.9% | 38,451 | 6.2% |
| Interest income | (1,260) | (0.2%) | (1,581) | (0.3%) |
| Other (income) expense, net | (1,937) | (0.3%) | 716 | 0.1% |
| Income before income taxes | 18,113 | 2.7% | 21,138 | 3.4% |
| Income tax expense | 4,154 | 0.6% | 5,102 | 0.8% |
| Net income | $13,959 | 2.1% | $16,036 | 2.6% |
| Net income per common share: |  |  |  |  |
| Basic | $0.15 |  | $0.18 |  |
| Diluted | $0.15 |  | $0.18 |  |
| Weighted average number of common shares outstanding: |  |  |  |  |
| Basic | 90,366 |  | 90,366 |  |
| Diluted | 90,366 |  | 90,366 |  |

The following table sets forth our results of operations including as a percentage of revenue for the nine months ended September 28, 2024 and September 30, 2023 (in thousands, except where otherwise noted):

|  | Nine Months Ended September 28, 2024 |  | September 30, 2023 |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $2,016,079 |  | $1,892,186 |  |
| Costs and expenses: |  |  |  |  |
| Cost of services (excluding depreciation and impairment) | 1,518,818 | 75.3% | 1,357,299 | 71.7% |
| Depreciation and amortization | 87,393 | 4.3% | 80,582 | 4.3% |
| Selling, general, and administrative expenses | 234,148 | 11.6% | 220,597 | 11.7% |
| Impairment losses | 7,140 | 0.4% | 7,081 | 0.4% |
| Total costs and expenses | 1,847,499 | 91.6% | 1,665,559 | 88.0% |
| Income from operations | 168,580 | 8.4% | 226,627 | 12.0% |
| Interest expense | 119,806 | 5.9% | 114,365 | 6.0% |
| Interest income | (5,120) | (0.3%) | (4,119) | (0.2%) |
| Other income, net | (5,721) | (0.3%) | (1,725) | (0.1%) |
| Income before income taxes | 59,615 | 3.0% | 118,106 | 6.2% |
| Income tax expense | 18,872 | 0.9% | 30,375 | 1.6% |
| Net income | $40,743 | 2.0% | $87,731 | 4.6% |
| Net income per common share: |  |  |  |  |
| Basic | $0.45 |  | $0.97 |  |
| Diluted | $0.45 |  | $0.97 |  |
| Weighted average number of common shares outstanding: |  |  |  |  |
| Basic | 90,366 |  | 90,366 |  |
| Diluted | 90,366 |  | 90,396 |  |

32

### Comparison of the Three Months Ended September 28, 2024 and September 30, 2023

### Revenue

|  | Three Months Ended September 28, 2024 | September 30, 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Early childhood education centers | $626,439 | $585,919 | $40,520 | 6.9% |
| Before- and after-school sites | 45,037 | 38,549 | 6,488 | 16.8% |
| Total revenue | $671,476 | $624,468 | $47,008 | 7.5% |

Total revenue increased by $47.0 million, or 7.5%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023.

Revenue from early childhood education centers increased by $40.5 million, or 6.9%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023, of which approximately 6% was from higher tuition rates and approximately 1% was attributable to increased enrollment. Revenue from early childhood education centers for the three months ended September 28, 2024 was higher by $10.5 million compared to the three months ended September 30, 2023 due to the timing of registration fee billing in the third quarter of fiscal 2024 compared to the second quarter of fiscal 2023.

The increase in revenue from early childhood education centers was driven by an increase in higher ECE same-center revenue. Excluding centers that became classified as same-centers after September 30, 2023, which primarily relates to Crème Schools, ECE same-center growth was $34.0 million. New and acquired centers not yet classified as same-centers contributed $9.1 million in revenue during the three months ended September 28, 2024.

Revenue from before- and after-school sites increased by $6.5 million, or 16.8%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023 primarily due to opening new sites, offering more summer day camps, and increased tuition rates.

### Cost of services (excluding depreciation and impairment)

Cost of services (excluding depreciation and impairment) increased by $52.7 million, or 11.2%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. This increase was primarily driven by a $20.0 million decrease in reimbursements from COVID-19 Related Stimulus recognized due to the conclusion of certain stimulus funding. The increase was also attributable to higher personnel costs of $18.0 million due to wage rate and labor hour increases, partially offset by lower grant related bonuses. Additionally, other cost of services increased by $9.9 million primarily as a result of increased marketing spend and insurance costs, and rent expense increased $4.9 million due to new centers.

### Depreciation and amortization

Depreciation and amortization increased by $2.6 million, or 9.5%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. This increase was primarily due to higher depreciation expense of $2.6 million as a result of additional capital expenditures in fiscal 2023 as well as depreciation of property and equipment at acquired and new centers.

### Selling, general, and administrative expenses

Selling, general, and administrative expenses decreased by $3.4 million, or 4.9%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. This decrease was driven by lower personnel costs of $1.8 million due to lower bonus reserve, partially offset by higher compensation expense on our deferred compensation plan. The decrease was also attributable to $1.7 million lower professional fees incurred as a result of investments in talent and transformational initiatives in fiscal 2023.

### Impairment losses

Impairment losses decreased by $0.5 million, or 29.2%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. This decrease was primarily driven by fewer centers with property and equipment impairment during the three months ended September 28, 2024.

### Interest expense

Interest expense increased by $1.0 million, or 2.6%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. This increase was primarily driven by $4.7 million in higher interest on long-term debt as a result of entering into an incremental first lien term loan in March 2024, partially offset by a $3.1 million decrease due to income recognized on our three pay-fixed-receive-float interest rate swap agreements during the three months ended September 28, 2024. Additionally, this increase was partially offset by a $0.6 million decrease in amortization of debt issuance costs.

### Interest income

Interest income decreased by $0.3 million, or 20.3%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. This decrease was primarily driven by lower cash balances held in interest-bearing accounts during the three months ended September 28, 2024.

### Other (income) expense, net

Other (income) expense, net increased by $2.7 million, or 370.5%, for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. This increase was primarily due to a $2.8 million net change in realized and unrealized holding gains on our deferred compensation plan investment trust assets. See Note 1 of our audited consolidated annual financial statements included in the Prospectus for further information regarding our deferred compensation plan.

### Income tax expense

Income tax expense decreased by $0.9 million for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023. The effective tax rate was 22.9% for the three months ended September 28, 2024 as compared to 24.1% for the three months ended September 30, 2023. Compared to the statutory rate, the difference in the effective tax rates for both the three months ended September 28, 2024 and September 30, 2023 was primarily due to state income taxes, partially offset by the relative impact that federal tax credits had on current and prior period activity.

### Comparison of the Nine Months Ended September 28, 2024 and September 30, 2023

### Revenue

|  | Nine Months Ended September 28, 2024 | September 30, 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Early childhood education centers | $1,872,894 | $1,774,767 | $98,127 | 5.5% |
| Before- and after-school sites | 143,185 | 117,419 | 25,766 | 21.9% |
| Total revenue | $2,016,079 | $1,892,186 | $123,893 | 6.5% |

Total revenue increased by $123.9 million, or 6.5%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023.

Revenue from early childhood education centers increased by $98.1 million, or 5.5%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023, of which approximately 5% was from higher tuition rates while enrollment remained relatively consistent.

The increase in revenue from early childhood education centers was driven by an increase in higher ECE same-center revenue. Excluding centers that became classified as same-centers after September 30, 2023, which primarily relates to Crème Schools, ECE same-center growth was $82.0 million. New and acquired centers not yet classified as same-centers contributed $21.5 million in revenue during the nine months ended September 28, 2024.

Revenue from before- and after-school sites increased by $25.8 million, or 21.9%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023 primarily due to opening new sites, increased tuition rates, and offering more summer day camps.

### Cost of services (excluding depreciation and impairment)

Cost of services (excluding depreciation and impairment) increased by $161.5 million, or 11.9%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. This increase was primarily driven by a $89.3 million decrease in reimbursements from COVID-19 Related Stimulus recognized due to the conclusion of certain stimulus funding. The increase was also attributable to higher personnel costs of $63.0 million due to wage rate and labor hour increases as well as benefits cost increases, partially offset by lower grant related bonuses. Additionally, other cost of services increased by $22.2 million primarily as a result of increased insurance costs and marketing spend, and rent expense increased $10.4 million due to new centers. These increases were partially offset by $23.4 million in ERC recognized during the nine months ended September 28, 2024.

### Depreciation and amortization

Depreciation and amortization increased by $6.8 million, or 8.5%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. This increase was primarily due to higher depreciation expense of $7.2 million as a result of additional capital expenditures in fiscal 2023 as well as depreciation of property and equipment at acquired and new centers, partially offset by a $0.3 million decrease in amortization expense driven by intangible assets that became fully amortized in fiscal 2023.

### Selling, general, and administrative expenses

Selling, general, and administrative expenses increased by $13.6 million, or 6.1%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. This increase was driven by a $8.4 million increase in equity-based compensation expense as a result of the March 2024 distribution to certain employees, officers, managers, directors, and other providers of services to KC Parent, LP ("KC Parent") and its subsidiaries with outstanding profit interest units (collectively, “PIU Recipients”) related to the 2015 Equity Incentive Plan ("PIUs Plan"), partially offset by the remeasurement of restricted stock units ("RSUs") and stock options to fair value each reporting period as a result of the awards becoming liability-classified in fiscal 2023. Additionally, we incurred $5.7 million higher meetings and travel expense attributable to our field leadership summit held during the nine months ended September 28, 2024 and $4.7 million in costs related to our transition to an integrated cloud-based enterprise resource planning system, primarily within computer costs, personnel costs, and professional fees. These increases were partially offset by $3.7 million lower professional, legal, and recruiting fees incurred as a result of investments in talent and transformational initiatives during the nine months ended September 30, 2023.

### Impairment losses

Impairment losses increased by $0.1 million, or 0.8%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. This increase was driven by $1.0 million higher right-of-use asset impairment from centers with lower cash flow projections, partially offset by $1.0 million lower property and equipment impairment due to fewer centers with property and equipment impairment during the nine months ended September 28, 2024.

### Interest expense

Interest expense increased by $5.4 million, or 4.8%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. This increase was primarily driven by $14.1 million in higher interest on long-term debt as a result of entering into an incremental first lien term loan in March 2024, partially offset by a $4.5 million decrease due to income recognized on our three pay-fixed-receive-float interest rate swap agreements during the nine months ended September 28, 2024 as compared to expense recognized on our interest rate cap agreement during the nine months ended September 30, 2023. Additionally, this increase was partially offset by a $4.2 million decrease in amortization of debt issuance costs.

### Interest income

Interest income increased by $1.0 million, or 24.3%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. This increase was primarily driven by higher average interest rates on cash balances held in interest-bearing accounts during the nine months ended September 28, 2024.

### Other (income) expense, net

Other (income) expense, net increased by $4.0 million, or 231.7%, for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. This increase was primarily due to a $2.5 million net change in realized and unrealized holding gains on our deferred compensation plan investment trust assets. The increase was also attributable to a $1.5 million gain recognized from insurance claims. See Note 1 of our audited consolidated annual financial statements included in the Prospectus for further information regarding our deferred compensation plan.

### Income tax expense

Income tax expense decreased by $11.5 million for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. The effective tax rate was 31.7% for the nine months ended September 28, 2024 as compared to 25.7% for the nine months ended September 30, 2023. Compared to the statutory rate, the difference in the effective tax rate for the nine months ended September 28, 2024 was primarily due to the partial release of the receivable related to uncertain tax positions as a result of the portion of ERC recognized, tax expense from equity-based compensation, and state income taxes. Compared to the statutory rate, the difference in the effective tax rate for the nine months ended September 30, 2023 was primarily driven by 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 (loss), and adjusted net income (loss) 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 (loss), and adjusted net income (loss) 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 (loss) 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 (loss), and adjusted net income (loss) 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 (loss), and adjusted net income (loss) 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 adjusted for interest and income tax expense (benefit). EBITDA is defined as EBIT adjusted for depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for impairment losses, equity-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, for the periods presented:

|  | Three Months Ended September 28, 2024 | September 30, 2023 | Nine Months Ended September 28, 2024 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net income** | **$13,959** | **$16,036** | **$40,743** | **$87,731** |
| Add back: |  |  |  |  |
| Interest expense | 39,459 | 38,451 | 119,806 | 114,365 |
| Interest income | (1,260) | (1,581) | (5,120) | (4,119) |
| Income tax expense | 4,154 | 5,102 | 18,872 | 30,375 |
| **EBIT** | **$56,312** | **$58,008** | **$174,301** | **$228,352** |
| Add back: |  |  |  |  |
| Depreciation and amortization | 29,641 | 27,069 | 87,393 | 80,582 |
| **EBITDA** | **$85,953** | **$85,077** | **$261,694** | **$308,934** |
| Add back: |  |  |  |  |
| Impairment losses (1) | 1,257 | 1,776 | 7,140 | 7,081 |
| Equity-based compensation (2) | (1,402) | 56 | (94) | 835 |
| Management and advisory fee expenses (3) | 1,216 | 1,216 | 3,648 | 3,648 |
| Acquisition related costs (4) | — | 84 | 16 | 1,179 |
| Non-recurring distribution and bonus expense (5) | — | — | 19,287 | — |
| COVID-19 Related Stimulus, net (6) | (14,908) | (32,160) | (65,683) | (126,857) |
| Other costs (7) | (760) | 970 | 6,139 | 8,659 |
| **Adjusted EBITDA** | **$71,356** | **$57,019** | **$232,147** | **$203,479** |

### Adjusted net income (loss) and adjusted net income (loss) per common share

Adjusted net income (loss) is defined as net income adjusted for income tax expense (benefit), amortization of intangible assets, impairment losses, equity-based compensation, management and advisory fee expenses, acquisition related costs, non-recurring distribution and bonus expense, COVID-19 Related Stimulus, net, other costs, and non-GAAP income tax expense (benefit) because these charges do not relate to the core operations of our business. Adjusted net income (loss) per common share is defined as the amount of adjusted net income (loss) per weighted average number of common shares outstanding. We present adjusted net income (loss) and adjusted net income (loss) per common share because we consider them to be important measures used to evaluate our operating performance internally. We believe the use of adjusted net income (loss) and adjusted net income (loss) per common share provides investors with consistency in the evaluation of the Company as they offer a meaningful comparison of past, present, and future operating results, as well as more useful financial comparisons to our peers. We believe these supplemental measures can be used to assess the financial performance of our business without regard to certain costs that are not representative of our continuing operations.

The following table shows adjusted net income (loss) and adjusted net income (loss) per common share for the periods presented and the reconciliation to the most comparable GAAP measure, net income and net income per common share, respectively, for the periods presented:

|  | Three Months Ended September 28, 2024 | September 30, 2023 | Nine Months Ended September 28, 2024 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net income** | **$13,959** | **$16,036** | **$40,743** | **$87,731** |
| Income tax expense | 4,154 | 5,102 | 18,872 | 30,375 |
| **Net income before income tax:** | **$18,113** | **$21,138** | **$59,615** | **$118,106** |
| Add back: |  |  |  |  |
| Amortization of intangible assets | 2,284 | 2,296 | 6,852 | 7,131 |
| Impairment losses (1) | 1,257 | 1,776 | 7,140 | 7,081 |
| Equity-based compensation (2) | (1,402) | 56 | (94) | 835 |
| Management and advisory fee expenses (3) | 1,216 | 1,216 | 3,648 | 3,648 |
| Acquisition related costs (4) | — | 84 | 16 | 1,179 |
| Non-recurring distribution and bonus expense (5) | — | — | 19,287 | — |
| COVID-19 Related Stimulus, net (6) | (14,908) | (32,160) | (65,683) | (126,857) |
| Other costs (7) | (760) | 970 | 6,139 | 8,659 |
| Adjusted income (loss) before income tax | 5,800 | (4,624) | 36,920 | 19,782 |
| Adjusted income tax expense (benefit) (8) | 1,497 | (1,193) | 9,529 | 5,106 |
| **Adjusted net income (loss)** | **$4,303** | **$(3,431)** | **$27,391** | **$14,676** |
| Net income per common share: (9) |  |  |  |  |
| Basic | $0.15 | $0.18 | $0.45 | $0.97 |
| Diluted | $0.15 | $0.18 | $0.45 | $0.97 |
| Adjusted net income (loss) per common share: (9) |  |  |  |  |
| Basic | $0.05 | $(0.04) | $0.30 | $0.16 |
| Diluted | $0.05 | $(0.04) | $0.30 | $0.16 |
| Weighted average number of common shares outstanding: (9) |  |  |  |  |
| Basic | 90,366 | 90,366 | 90,366 | 90,366 |
| Diluted | 90,366 | 90,366 | 90,366 | 90,396 |

### Explanation of add backs:

(1) Represents impairment charges for long-lived assets as a result of center closures and reduced operating performance at certain centers due to the impact of changing demographics in certain locations in which we operate and current macroeconomic conditions on our overall operations.

(2) Represents non-cash equity-based compensation expense in accordance with Accounting Standards Codification ("ASC") 718, *Compensation: Stock Compensation.*

(3) Represents amounts incurred for management and advisory fees with related parties in connection with a management services agreement with Partners Group (USA), Inc., a related party of the Company’s ultimate parent, which was terminated upon completion of our IPO.

(4) Represents costs incurred in connection with planned and completed acquisitions, including due diligence, transaction, integration, and severance related costs. During the periods presented, these costs were incurred related to the acquisition of Crème School.

(5) During March 2024, we recognized a $14.3 million one-time expense related to an advance distribution to Class B PIU Recipients. In connection with this distribution, we recognized a $5.0 million one-time bonus expense for RSU and stock options to certain service providers, which are defined as employees, consultants, or directors (collectively, “Participants"), to account for the change in value associated with the March 2024 distribution to PIU Recipients. We do not routinely make distributions to PIU Recipients in advance of a liquidity event or pay bonuses to RSU or stock option Participants outside of normal vesting and we do not expect to do so in the future.

(6) Includes expense reimbursements and revenue arising from the COVID-19 pandemic, net of pass-through expenses incurred as a result of certain grant requirements. We recognized $16.9 million and $36.9 million during the three months ended September 28, 2024 and September 30, 2023, and $55.9 million and $145.2 million during the nine months ended September 28, 2024 and September 30, 2023, respectively, in funding for reimbursement of center operating expenses in cost of services (excluding depreciation and impairment), as well as $0.2 million and $1.4 million during the three months ended September 28, 2024 and

September 30, 2023, and $0.3 million and $3.0 million during the nine months ended September 28, 2024 and September 30, 2023, respectively, in revenue arising from COVID-19 Related Stimulus. Additionally, during the nine months ended September 28, 2024, we recognized $23.4 million of ERC offsetting cost of services (excluding depreciation and impairment) as well as $2.6 million in professional fees in selling, general, and administrative expenses as a result of calculating and filing for ERC. COVID-19 Related Stimulus is net of pass-through expenses incurred as stipulated within certain grants of $2.3 million and $6.0 million during the three months ended September 28, 2024 and September 30, 2023, and $11.4 million and $21.3 million during the nine months ended September 28, 2024 and September 30, 2023, respectively.

(7) Other costs include certain professional fees incurred for both contemplated and completed debt and equity transactions, as well as costs expensed in connection with prior contemplated offerings. For the three months ended September 28, 2024, other costs include expenses incurred, offset by a refund for costs expensed in a prior period resulting in a net credit to expense, for professional fees incurred as a result of our IPO. For the three months ended September 30, 2023, other costs include expenses incurred related to a contemplated equity transaction. For the nine months ended September 28, 2024, other costs includes $2.9 million in transaction costs associated with our incremental first lien term loan and repricing on our $1,750.0 million senior secured credit facilities and $0.7 million in costs related to our IPO. For the nine months ended September 30, 2023, other costs includes $6.3 million in transaction costs associated with our June 2023 refinancing. These costs represent items management believes are not indicative of core operating performance.

(8) Includes the tax effect of the non-GAAP adjustments, calculated using the appropriate federal and state statutory tax rate for each adjustment. The non-GAAP tax rate was 25.8% for both the three and nine months ended September 28, 2024 and September 30, 2023. Our statutory rate is re-evaluated at least annually.

(9) The outstanding shares and per share amounts have been retrospectively adjusted to reflect the Common Stock Conversion. Refer to Note 1 and Note 18 within the unaudited condensed consolidated interim financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

### Liquidity and Capital Resources

Our primary sources of cash are cash provided by operations, current cash balances, and borrowings available under a $160.0 million revolving credit facility (the "First Lien Revolving Credit Facility"). Our principal uses of cash are payments of our operating expenses, such as personnel salaries and benefits, debt service, rents paid to landlords, and capital expenditures.

We expect to continue to meet our liquidity requirements for at least the next 12 months under current operating conditions with cash generated from operations, cash on hand, and to the extent necessary and available, through borrowings under the credit agreement, dated as of June 12, 2023 (as subsequently amended and restated) (the "Credit Agreement"). If the need arises for additional expenditures, we may seek additional funding. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors.” We have incurred significant 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, as well as the corporate governance standards of the Sarbanes-Oxley Act and the New York Stock Exchange. In the future, we may attempt to raise additional capital through the sale of equity securities or debt financing arrangements. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. We cannot provide assurance that we will be able to raise additional capital in the future on favorable terms, or at all. Any inability to raise capital could adversely affect our ability to achieve our business objectives.

### Debt facilities

As of September 28, 2024, our Credit Agreement consists of a $1,590.0 million first lien term loan ("First Lien Term Loan Facility") and a $160.0 million First Lien Revolving Credit Facility.

In March 2024, we entered into an amendment to the Credit Agreement for a $265.0 million incremental first lien term loan. The amendment increased the required quarterly principal payments on the First Lien Term Loan Facility to $4.0 million from $3.3 million, beginning with the payment due for the quarter ended March 30, 2024. All other terms under the Credit Agreement remained unchanged.

In April 2024, we entered into a repricing amendment to the Credit Agreement for the First Lien Term Loan Facility and the First Lien Revolving Credit Facility, including fees on the outstanding balance of letters of credit. As of the effective date of the amendment, the First Lien Term Loan Facility bears interest at a variable rate equal to the Secured Overnight Financing Rate ("SOFR"), plus 4.50% per annum. Additionally, as of the effective date of the amendment, amounts drawn under the First Lien Revolving Credit Facility bear interest at SOFR plus an applicable rate between 4.00% and 4.50% per annum, and fees on the outstanding balance of letters of credit bear interest at an applicable rate between 4.00% and 4.50% per annum, based on a pricing grid of our First Lien Term Loan Facility net leverage ratio. All other terms under the Credit Agreement remained unchanged.

On October 10, 2024, subsequent to the end of the three and nine months ended September 28, 2024, we entered into an amendment to the Credit Agreement to increase the total borrowing capacity of the First Lien Revolving Credit Facility by $80.0 million to $240.0 million and extend the maturity date of $225.0 million of the facility (the “Revolving Extended Tranche Commitments”) to the earlier of October 2029 or 91 days prior to the First Lien Term Loan Facility maturity date (the "Springing Maturity Date"), unless on or prior to the Springing Maturity Date, the Company repays, repurchases, or redeems, in full, the First Lien Term Loan Facility. Additionally, the cap on the amount of letters of credit that can be drawn against the borrowing capacity of the First Lien Revolving Credit Facility increased to $172.5 million. The maturity date of the remaining $15.0 million of non-extended commitments was unchanged from June 2028.

On October 30, 2024, we repaid $608.0 million of outstanding principal on the First Lien Term Loan Facility utilizing the net proceeds from our IPO, reducing the principal balance to $966.8 million, and, in conjunction, entered into a repricing amendment to the Credit Agreement (the "Repricing Amendment"). As of the effective date of the Repricing Amendment, the First Lien Term Loan Facility bears interest at a variable rate equal to SOFR plus 3.25% per annum. Additionally, amounts drawn under the First Lien Revolving Credit Facility bear interest at SOFR plus an applicable rate between 2.75% and 3.25% per annum, and fees on the outstanding balance of letters of credit bear interest at an applicable rate between 2.75% and 3.25% per annum, based on a pricing grid of our First Lien Term Loan Facility net leverage ratio. The Repricing Amendment decreased the required quarterly principal payments on the First Lien Term Loan Facility to $2.4 million, beginning with the payment due for the quarter ended March 29, 2025. All other terms under the Credit Agreement remain unchanged.

As of September 28, 2024, there were no outstanding borrowings under the First Lien Revolving Credit Facility and $55.8 million of outstanding letters of credit.

The interest rate effective as of September 28, 2024 was 9.83% on the First Lien Term Loan Facility, 4.00% on outstanding letters of credit, and 0.25% on the unused portion of the First Lien Revolving Credit Facility.

The weighted average interest rate during the nine months ended September 28, 2024 for the First Lien Term Loan Facility was 10.11%.

All obligations under the Credit Agreement are secured by substantially all of our assets. The Credit Agreement contains various financial and nonfinancial loan covenants and provisions.

Under the Credit Agreement the financial loan covenant is a quarterly maximum First Lien Term Loan Facility net leverage ratio (as defined in the Credit Agreement) to be tested only if, on the last day of each fiscal quarter, the amount of revolving loans outstanding on the First Lien Revolving Credit Facility (excluding all letters of credit) exceeds 35% of total revolving commitments on such date. As this threshold was not met as of September 28, 2024 the quarterly maximum First Lien Term Loan Facility net leverage ratio financial covenant was not in effect. Nonfinancial loan covenants restrict our 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.

The First Lien Term Loan Facility matures in June 2030 and the First Lien Revolving Credit Facility matures in June 2028.

As of September 28, 2024, we were in compliance with all covenants of the Credit Agreement.

In February 2024, we entered into a credit facilities agreement, dated as of February 1, 2024, which allows for $20.0 million in letters of credit to be issued ("LOC Agreement"). We pay an interest rate of 5.95% on any outstanding balance and 0.25% on any unused portion. The LOC Agreement matures in December 2026. Upon entering into the LOC Agreement, we 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.

As of September 28, 2024, there were $20.0 million outstanding letters of credit under the LOC Agreement.

We do not engage in off-balance sheet financing arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

See Note 10 and Note 18 of our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding our debt facilities.

### Cash flows

The following table summarizes our cash flows (in thousands) for the periods presented:

|  | Nine Months Ended September 28, 2024 | September 30, 2023 |
| --- | ---: | ---: |
| Cash provided by operating activities | $156,736 | $307,764 |
| Cash used in investing activities | (108,702) | (96,542) |
| Cash used in financing activities | (67,112) | (127,786) |
| Net change in cash, cash equivalents, and restricted cash | (19,078) | 83,436 |
| Cash, cash equivalents, and restricted cash at beginning of period | 156,412 | 105,469 |
| **Cash, cash equivalents, and restricted cash at end of period** | **$137,334** | **$188,905** |

#### Net cash provided by operating activities

Cash provided by operating activities decreased by $151.0 million for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. Net income, adjusted for non-cash items, decreased by $37.1 million primarily due to lower cost reimbursements from COVID-19 Related Stimulus recognized, partially offset by revenue growth. The net changes in operating assets and liabilities resulted in a $114.0 million decrease in cash primarily due to deferred recognition of ERC and collections on grants receivable during the nine months ended September 30, 2023, partially offset by higher accrued interest expense due to the timing of interest payments during the nine months ended September 28, 2024.

#### Net cash used in investing activities

Cash used in investing activities increased by $12.2 million for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. The increase was driven by $6.7 million in higher payments for acquisitions and $4.8 million in higher capital expenditures.

#### Net cash used in financing activities

Cash used in financing activities decreased by $60.7 million for the nine months ended September 28, 2024 as compared to the nine months ended September 30, 2023. The decrease was primarily due to the $264.3 million in proceeds from the issuance of an incremental first lien term loan during the nine months ended September 28, 2024 as well as the $115.8 million net impact of our June 2023 refinancing during the nine months ended September 30, 2023. These decreases were partially offset by the $320.0 million March 2024 distribution to KC Parent during the nine months ended September 28, 2024.

### Cash requirements

As of September 28, 2024, we have cash requirements for leases, long-term debt payments and other liabilities. For lease related information, see Note 7 of our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

As of September 28, 2024, we have the following obligations:

- Long-term debt obligations, including interest, of $2.5 billion are expected to be paid out as follows: $45.1 million for the remainder of 2024, $372.1 million in two to three years, $323.9 million in four to five years, and $1.7 billion thereafter through June 2030 when the First Lien Term Loan Facility matures.
- Self-insurance obligations of $66.9 million are expected to be paid out as claims are settled and cash outflows cannot be estimated reliably.
- Deferred compensation plan of $37.2 million is expected to be paid out based on the individual plan participant and cash outflows cannot be estimated reliably.
- Promissory notes, including interest, of $0.8 million are expected to be paid out as follows: $0.1 million for the remainder of 2024, $0.6 million in two to three years, and $0.1 million in four to five years.
- Other liabilities of $4.3 million is comprised of various payables expected to be paid out based on the contractual terms.
- Service arrangements which include certain information technology, labor software, and maintenance services of $48.8 million are expected to be paid out as follows: $6.2 million for the remainder of 2024, $17.7 million in two to three years, $7.5 million in four to five years, and $17.4 million thereafter.

Certain agreements may have cancellation penalties for which, if we were to cancel, we would be required to pay up to approximately $4.8 million. Other cancellation penalties cannot be estimated as we cannot predict the occurrence of future agreement cancellations. See Note 11 and Note 14 of our audited consolidated annual financial statements included in the Prospectus for additional detail related to our contractual obligations.

### Critical Accounting Estimates and Significant Judgments

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect our consolidated financial statements and accompanying notes. Amounts recorded in our consolidated financial statements are, in some cases, estimates based on our management’s judgment and input from actuaries and other third parties and are developed from information available at the time. We evaluate the appropriateness of these estimates on an ongoing basis. Actual outcomes may vary from the estimates, and changes, if any, are reflected in current period earnings.

There have been no changes to our critical accounting policies described within Management's Discussion and Analysis of Financial Condition and Results of Operations in our Prospectus. For a description of our other significant accounting policies, see Note 1 in both our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated annual financial statements included in the Prospectus.

## Market risk

As filed, 3,323 characters.

We are exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact our results of operations or financial condition due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates.

### Interest Rate Risk

As of September 28, 2024, we had $1.5 billion of variable-rate debt, net of debt issuance costs. We estimate that had the average interest rates on our borrowings outstanding under the Credit Agreement increased by 100 basis points, our interest expense would have increased by approximately $2.0 million during the three months ended September 28, 2024 and approximately $6.0 million during the nine months ended September 28, 2024, net of the effects of our interest rate derivatives.

We are exposed to interest rate risk and may use derivatives to manage variable interest rates on the First Lien Revolving Credit Facility and the First Lien Term Loan Facility. We do not hold or issue derivatives for trading or speculative purposes. We may enter into interest rate derivative contracts that are designated as cash flow hedges under ASC 815, *Derivatives and Hedging*, to effectively convert a portion of our variable-rate debt to a fixed-rate basis. In October 2022, we entered into an interest rate cap agreement that commenced in December 2022 and matured in June 2024 in order to hedge interest rate risk on a portion of the variable-rate debt of our prior $1,200.0 million first lien term loan facility, which was repaid in full in connection with the June 2023 refinancing. We paid an initial $5.0 million premium for the interest rate cap, which we amortized over the life of the contract. Under the interest rate cap, we received variable amounts from a counterparty if interest rates rose above the strike rate on the contract. The interest rate hedged under the interest rate cap was modified from the London Interbank Offered Rate to SOFR contemporaneously with our June 2023 refinancing in connection with reference rate reform. We elected to adopt an optional expedient available under ASC 848, *Reference Rate Reform*, which allowed a hedging relationship to continue, in light of a change in critical terms, without de-designation of the hedge. The derivative's notional amount was $659.8 million immediately prior to its expiration on June 28, 2024 and was considered highly effective through its expiration. In January 2024, we entered into a pay-fixed-receive-float interest rate swap with a notional amount of $400.0 million and a fixed interest rate of 3.85% per annum. Additionally, in February 2024, we entered into two pay-fixed-receive-float interest rate swaps each with a notional amount of $200.0 million and a fixed interest rate of 3.89% per annum. These swaps commenced in June 2024 when the interest rate cap expired, and they will mature in December 2026, with a total notional amount of $800.0 million through December 2026. The contracts were executed in order to hedge the interest rate risk on a portion of the variable debt under the Credit Agreement and we receive variable amounts of interest from a counterparty at the greater of three-month SOFR or 0.50% per annum. As of September 28, 2024, the derivatives are considered highly effective.

## Controls and procedures

As filed, 4,039 characters.

### Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure.

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 28, 2024 due to a previously-disclosed material weakness in our internal control over financial reporting as described below. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

### Material Weaknesses in Internal Control Over Financial Reporting

We previously identified a material weakness that continues to exist, which relates to the lack of effectively designed and maintained IT general controls for information systems that are relevant to the preparation of our consolidated financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel; and (iii) computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored.

We are in the process of designing and implementing controls and taking other actions to remediate the material weakness described above, including implementing an enterprise resource planning software system. The material weakness will not be considered remediated until we complete the design and implementation of controls, the controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are effective.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended September 28, 2024.

### Limitations on the Effectiveness of Controls

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

## Risk factors

As filed, 294 characters.

Investing in our common stock involves a high degree of risk. For a detailed discussion of the risks that affect our business, please refer to the section titled “Risk Factors” in the Prospectus. There have been no material changes to our risk factors as previously disclosed in the Prospectus.

Filed Nov 21, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-129727. Last ingested by Listed: Oct 24, 2026, 15:06 ET. No prices; not investment advice.