KLC 10-K & 10-Q changes, risk factors and insider trading
KinderCare Learning Companies, Inc. · NYSE · Services-Child Day Care Services · CIK 1873529 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Our success depends on our ability to attract and retain families in our centers, schools and programs, and to attract and retain employers that contract with us for family care benefits for their workforce.”
New heading “Our reliance on third-party vendors and service providers exposes us to operational and cost risks that could adversely affect our business.”
New heading “Our business may be affected by delays, disruptions or reductions in federally funded childcare subsidies or tuition reimbursements or from reductions in certain federal, state and local government programs.”
New heading “Our substantial indebtedness could adversely affect our ability to obtain capital to fund our operations, limit our flexibility in operating our business, expose us to interest rate risk to the extent of our variable rate debt, and limit cash flow available to invest in the ongoing needs of our business.”
New heading “Impairment of goodwill, other intangible assets or long-lived assets has negatively impacted, and may in the future negatively impact, our results of operations.”
New heading “Our actual or perceived failure to comply with stringent and evolving laws, regulations, rules, contractual obligations, policies, and other obligations related to data privacy and security may materially and adversely affect us.”
New heading “Our failure to comply with, or adapt to changes in, the highly complex legal and regulatory framework applicable to our business could harm our operations, operating results and financial condition.”
Removed heading “Changes in our relationships with employer sponsors or failure to anticipate and respond to changing client (parents or client employees) preferences and expectations or develop new customer-oriented services may affect our operating results.”
Removed heading “Our revenue and profitability may be affected if there are changes in the spending policies or budget priorities for government funding of child care and education.”
Removed heading “We may face risks related to our indebtedness.”
Removed heading “The terms of our Credit Facilities impose operating and financial restrictions on us that may impair our ability to respond to changing barriers and economic conditions.”
Removed heading “The growth of our business may be adversely affected if we do not implement our growth strategies and initiatives successfully or if we are unable to manage our growth or operations effectively.”
Removed heading “Any impairment of goodwill, other intangible assets or long-lived assets could negatively impact our results of operations.”
Removed heading “We are subject to payment-related risks that may result in higher operating costs or the inability to process payments, either of which could harm our brand, reputation, business, financial condition and results of operations.”
Removed heading “Certain estimates of market opportunity and forecasts of market growth included herein may prove to be inaccurate.”
Removed heading “We may change our dividend policy at any time.”
Removed heading “Our third amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware or federal district courts of the United States will be the sole and exclusive forum for certain types of lawsuits, which could limit our stockholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.”
Removed heading “Compliance with existing and new laws and regulations could impact the way we conduct business.”
Removed heading “Changes in tax laws or to any of the several factors upon which our tax rate is dependent could impact our future tax rates and net (loss) income and affect our profitability.”
Removed heading “If securities or industry analysts cease publishing research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade our common stock, the price of our common stock could decline.”
Removed heading “We incur significant additional costs as a result of being a public company, and our management is required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.”
Removed heading “As a result of being a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting and any failure to maintain the adequacy of these internal controls may negatively impact investor confidence in our Company and, as a result, the value of our common stock.”
Removed heading “If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.”
Removed heading “Discovery of any environmental contamination may affect our operating results.”
Largest changes
“If we are unable to remediate the identified material weakness in a timely manner, or at all, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures in the future, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be negatively affected, and we could become subject to stockholder litigation or investigations by the NYSE, the SEC or other regulatory authorities, which could require additional financial and management resources and harm our …”see in full comparison
“We are not currently required to comply with the rules of Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial report for that purpose, nor have we engaged an independent registered public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our consolidated financial statements. …”see in full comparison
“Obligations related to data privacy and security are quickly changing, becoming increasingly stringent, and creating regulatory uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources. These obligations may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. …”see in full comparison
The occurrence of one or more natural disasters, such as fires, hurricanes, tornados,see in full comparisontsunamis,floods and earthquakes, geo-political events, such as protests, civil unrest or terrorist or military activities disrupting transportation, communication or utility systems or other highly disruptive events, such as nuclear accidents, public health epidemics or pandemics (such as the COVID-19 pandemic or other highly transmissible diseases), unusual weather conditions or cyberattacks, could adversely affect our operations and financial performance. For example, certain of our centers in Southern California were impacted by the January 2025 wildfires. Such events have resulted in and could result in future physical damage to or destruction or temporary closure of one or more of our centers or properties used by third parties in connection with the supply of products or services to us, the lack of an adequate workforce in parts or all of our operations, data, utility and communications disruptions, fewer children attending our centers, including due to quarantines or public health crises, the inability of our families to reach or have transportation to our locations directly affected by such events and the inability to operate our business. In addition, these events could cause a temporary reduction in enrollments or the ability to run our business or could indirectly result in increases in the costs of our insurance if they result in significant loss of property or other insurable damage.The uncertain nature, magnitude and duration of hostilities stemming from Russia’s military invasion of Ukraine and the conflict between Israel and Hamas, including the potential effects of sanctions and retaliatory cyberattacks on the world economy and markets, have contributed to increased market volatility and uncertainty, and such geo-political risks could have an adverse impact on macroeconomic factors. These factors could also cause consumer confidence and spending to decrease or result in increased volatility in the United States and global financial markets and economies. Any of these developments could have a material and adverse effect on our business, financial condition and results of operations.
“A breach of any of these covenants could result in an event of default under our Credit Facilities and/or other agreements containing cross-default provisions, which could result in our lenders accelerating our debt by declaring amounts outstanding under our debt instruments, including accrued interest, to be immediately due and payable. If we are unable to pay those amounts, the lenders under our Credit Facilities could proceed against the collateral granted to them to the extent such collateral secures such indebtedness. …”see in full comparison
“Impairment of goodwill, other intangible assets or long-lived assets has negatively impacted, and may in the future negatively impact, our results of operations.”see in full comparison
Full comparison: every changed paragraph (165)
Investing in our common stock involves risks. You should carefully consider the risks described below, together with all of the other information included in this Annual Report, including our consolidated financial statements and related notes included elsewherein inItem 8 of this Annual Report, before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of shares of our common stock could decline, and you may lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we currently see as immaterial may also adversely affect our business.
Our success depends on our ability to attract and retain families in our centers, schools and programs, and to attract and retain employers that contract with us for family care benefits for their workforce.
We serve families and their children six weeks to 12 years of age across the United States and a broad range of demographics and income levels. The success of our business depends on our ability to attract and retain families in our centers, schools and programs. Our marketing efforts may not be successful in attracting families or in attracting employers that provide family care benefits to their workforce. Enrollment levels may materially decline over time.
We experience attrition and must continually engage existing families and attract new families in order to maintain enrollment levels in our centers, sites and programs. Similarly, we must continually engage with existing employers and promote the value of and utilization of our family care benefits by their workforce, maintain renewals of employer contracts, and attract new employers in order to maintain onsite employer-sponsored centers and relationships. Maintaining and growing our enrollment also requires that we develop new consumer-oriented strategies or services to accommodate changing client, children or parent expectations and preferences around service delivery. Our future success depends on our ability to continue to meet the evolving needs and expectations of our clients, including enhancing our existing services.
Employers whose employee base does not regularly use our family care benefits may be more likely to decrease or cancel their arrangements with us. Our contracts with employers for full-service center-based and site-based child care generally have terms of 10 to 15 years, though some have terms as long as 30 years, with varying terms and renewal and termination options. Because of the longer term nature of our contracts with employers, we may experience greater challenges in securing new employers. Employer sponsors have historically reduced their expenditures for benefits related to family services during economic downturns. The termination or non-renewal of a significant number of contracts or the termination of a multiple-site or multiple-service client relationship could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Families may cancel their enrollment at any time after giving proper notification, in accordance with the terms of their agreement. We may also cancel or suspend enrollment or family care benefits if a family or employer, respectively, fails to provide payment.
Some of the factors that could lead to a decline in enrollment levels include changing demographics of families, their perception of our brand, a shift to remote work, changes in spending trends among families and employers, and general economic conditions, such as inflation, changes in customer behavior as a result of public health or other concerns, market maturity or saturation, a decline in our ability to deliver quality service at a competitive price, increases in tuition rates or the cost of our services, direct and indirect competition in our industry and a decline in families’ interest in non-family child care, among other factors. If we are not successful in optimizing tuition rates or in adding new enrollments in new and existing centers, sites and programs or adding new employers, growth revenue may suffer
Most of our families are dual-income families or working single parents who require ECE, and we are dependent on this demographic segment and the economic health of this segment to maintain and grow center revenues. As a result, changes in demographic trends, including the number of dual-income or working single parent families in the workforce, changes in the population of families that may use our service in an area, personal disposable income, and birth rates may impact the demand for our services. Furthermore, our families and the financial resources available to them for our child care services may be negatively affected by macroeconomic factors in the United States such as high costs of consumer goods such as may be caused by inflation or tariffs, decline in consumer confidence, high consumer debt, declines in home values, increase in unemployment or underemployment, wage deflation, and taxes and tax policy. Demand for our services and solutions also may be adversely affected by changes in workforce demographics and work-place environments, such as trends in working in “virtual” or “home” offices, and other issues, such as pandemic, epidemic disease outbreaks and natural disasters. A shift in workplace demographics where employees work from home on a part- or full-time basis, or a sustained decrease in the number of women or dual-career households in the workforce, may reduce demand for center-based or site-based child care or specific center or site locations as well as other service offerings.
Similarly, uncertainty or a deterioration in economic conditions described above may negatively impact employers and cause these employers not to offer the family care benefits that we provide. This may result in the number of employers failing to grow at the levels we anticipate or declining. In addition, a reduction in the size of an employer’s workforce could negatively impact the demand for our services and result in reduced enrollment or failure of our employer clients to renew their contracts.
Most of our families are dual-income families or working single parents who require ECE, and we are dependent on this demographic segment to maintain and grow center revenues. As a result, changes in demographic trends, including the number of dual-income or working single parent families in the workforce, inflation, personal disposable income and birth rates may impact the demand for our services. In addition, our strategy also depends on employers recognizing the value in providing employees with child care, workforce education and other workplace solutions as an employee benefit. The number of employers that view such services as cost effective or beneficial to their workforces may not continue to grow at the levels we anticipate or may diminish. Such changes could materially and adversely affect our business, financial condition and results of operations.
Demand may be adversely affected by general economic conditions, changes in workforce demographics and work-place environments, and global crises, such as pandemic or epidemic disease outbreaks. Uncertainty or a deterioration in economic conditions could also lead to reduced demand for our services. In addition, a reduction in the size of an employer’s workforce could negatively impact the demand for our services and result in reduced enrollment or failure of our employer clients to renew their contracts. A deterioration of general economic conditions or changes in workforce demographics may adversely impact the need for our services because out-of-work parents may decrease or discontinue the use of child care services, or be unwilling to pay tuition for high-quality services. Additionally, we may not be able to increase the price for our services at a rate consistent with increases in our operating costs. If demand for our services were to decrease, it could disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.
Our success depends on the efforts, abilities and continued services of our executive officers and other key employees. We believe future success will depend upon our ability to continue to attract, motivate and retain highly-skilled managerial, sales and marketing, regional and child care and early education center and site director personnel. We may experience difficulty in attracting, hiring and retaining corporate staff and key employees due to the current labor market.employees. Difficulties in hiring and retaining key personnel may affect our ability to meet growth objectives and such market pressures may require us to enhance compensation and benefits, which may increase costs. Failure to retain our leadership team and attract and retain other important personnel could lead to disruptions in management and operations, which could materially and adversely affect our business, financial condition and results of operations.
In addition, the widespread use of social media and digital communication platforms has increased the speed at which information, including allegations, misinformation or negative perceptions, can be disseminated to a broad audience. Isolated incidents, allegations or claims may be rapidly amplified through social media channels and could result in significant reputational harm, decreased enrollment, loss of employer relationships or increased regulatory scrutiny. Our ability to effectively respond to or mitigate the impact of such publicity may be limited, and reputational harm arising from social media or digital platforms could have a material adverse effect on our business, financial condition and results of operations.
Our continued profitability depends on our ability to offsetmanage our increased costs, such as labor and related costs, through increases in tuition rates.costs.
Hiring and retaining key employees and qualified personnel, including teachers, is critical to our business. Labor costs constitute our largest expense. Because we are primarily a service business, inflationary factors and regulatory changes that contribute to wage and benefits cost increases may result in significant increases in the costs of running our business.
AdditionallyAdditionally, from time to time, legislative proposals are made or discussed to increase the federal minimum wage in the United States as well as the minimum wage in a number of states and municipalities. We expect to pay employees at rates above the minimum wage, and increases in the statutory minimum wage rates could result in a corresponding increase in the wages and benefits we pay to our employees. Additionally, legislative proposals are also made or discussed to raise the federal minimum wage and reform entitlement programs, such as health insurance and paid leave programs. If any of these proposals are successful resulting in an increase in the federal minimum wage or entitlement programs, such an increase could result in an increase in the wages and benefits we pay. Additionally, competition for teachers in certain markets and costs of retraining teachers could result in significant increases in the cost of running our business. Our success depends on our ability to continue to passmanage alongthese costs, to recoup these costs tothrough ourrevenue familiesincreases, and to meet our changing labor needs while controlling costs. In the event that we cannot increase the price for our services to cover these higher wage and benefit costs without reducing family demand for our services, our margins could be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations as well as our growth.
In the event that we cannot increase the price for our services to cover these higher wage and benefit costs without reducing family demand for our services, our margins could be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations as well as our growth.
Our ability to findsecure affordable real estate leases and renew existing leases on terms acceptable to us may affect our operating results.
As of January 3, 2026, we lease approximately 1,600 early childhood education centers and have the right to utilize approximately 1,000 before- and after-school sites located in 41 states and the District of Columbia. Real estate and related costs are our second largest expense.
Our ability to effectively obtain real estate leases to open new centers depends on the availability of and our ability to identify cost-effective properties that meets our criteria for site convenience, demographics, square footage, lease economics, licensing regulations and other factors. We also must be able to cost-effectively negotiate or renew our existing center and after-school site leases and facility use agreements at attractive rental rates. For example, in 2015 we entered into a master lease agreement with KCP RE LLC, a former affiliate, with respect to approximately 500 of our centers across the United States, for which KCP RE LLC serves as the lessor. ThisThe majority of leases under this master lease expiresexpire in 2033 and isare extendable at our option for two five-year periods. A termination of the master lease agreement, changes in the lease economics or other modifications to the lease could cause material disruption to our business, including, among other things, a significant increase in rental costs and/or closures of centers. Additionally, if we cannot renew leases for an appropriate term, it may affect enrollment should parents become concerned with the length of time a center will remain open in a particular location. In certain markets, we may also seek to downsize, consolidate, reposition or close some of our locations, which in some cases requires a modification to an existing center lease. Failure to secure adequate new locations or successfully modify existing leases, or failure to effectively manage rent cost, could have a material adverse effect on our business, financial condition and results of operations.
In addition to rent, our leases generally provide for additional payments associated with common area maintenance, real estate, taxes and insurance. In addition, many of our lease agreements have variable lease payments based on an index or rate, such as consumer price indices, and include rent escalations or market adjustment provisions. In order to operate our locations on a cost-effective basis, we must ensure that our enrollment and tuition rates are sufficient to cover the lease costs of our locations. If we are not able to expand enrollment or increase tuition rates commensurate with material increases in lease expense, our operating results will be negatively affected.
We expect that we would enter into leases or facility use agreements for any new center or after-school site locations. Our ability to effectively obtain real estate leases and/or facility use agreements to open new centers or locations depends on the availability of and our ability to identify cost-effective properties that meet our criteria for site convenience, demographics, square footage, lease economics, licensing regulations and other factors. Many factors may impact our ability to open or acquire centers in new markets and operate them profitably, such as our ability to gather and assess demographic and marketing data to determine demand for our centers in the locations we select, our ability to negotiate favorable lease agreements and/or facility use agreements, our ability to properly assess the profitability of potential new locations, our ability to successfully rebrand any new centers we acquire and integrate these locations into our existing operations, and our ability to provide a childcare and education service that is responsive to the needs of the families living in the areas where new centers are leased. Once we decide on a new market and find a suitable location, any delays in opening or acquiring centers or sites could impact our financial results. It is possible that events, such as delays in licensing, material shortages, labor issues, weather delays or other acts of god, or accidents, could delay planned new center or site openings beyond their expected dates or force us to abandon planned openings altogether. In addition, new locations typically generate lower operating margins because pre-opening expenses are expensed as they are incurred and because fixed costs, as a percentage of net sales, are higher. Furthermore, the substantial management time and resources dedicated to expansion may result in disruption to our existing business operations, which may decrease our profitability.
In certain markets, we may also seek to downsize, consolidate, reposition or close some of our locations, which in some cases requires a modification to an existing center lease or may result in expenses associated with these activities. Additionally, when locations are downsized, consolidated, repositioned or closed, we may not be successful in enrolling families from that location into one of our other locations.
Failure to secure adequate new locations or successfully modify existing leases or facility use agreements, or failure to effectively manage rent cost, could have a material adverse effect on our business, financial condition and results of operations.
Our reliance on third-party vendors and service providers exposes us to operational and cost risks that could adversely affect our business.
We rely on a number of third-party vendors and service providers to support critical aspects of our operations, including food services, curriculum materials, school supplies, background screening, payroll and benefits administration, information technology services, and other operational functions. In some cases, we depend on a limited number of vendors that operate at a national or regional scale. Any disruption in the services provided by these vendors, including as a result of financial instability, labor shortages, cybersecurity incidents, supply chain disruptions, or failures to meet contractual or regulatory requirements, could impair our ability to operate our centers and programs efficiently or in compliance with applicable standards.
In addition, increased costs imposed by third-party vendors may be difficult to offset through tuition increases or other pricing adjustments. Our ability to replace vendors on acceptable terms, or at all, may be limited, particularly where services are highly specialized or subject to regulatory requirements. Any such disruptions or cost increases could have a material adverse effect on our business, financial condition and results of operation.
Changes in our relationships with employer sponsors or failure to anticipate and respond to changing client (parents or client employees) preferences and expectations or develop new customer-oriented services may affect our operating results.
Our contracts with employers for full-service center-based and site-based child care generally have terms of 10 to 15 years, though some have terms as long as 30 years, with varying terms and renewal and termination options. We have a history of consistent contract renewals, but we may not experience similar renewal rates in the future. Employer sponsors have historically reduced their expenditures for benefits related to family services during economic downturns. The termination or non-renewal of a significant number of contracts or the termination of a multiple-site or multiple-service client relationship could have a material adverse effect on our business, financial condition, results of operations or cash flows. Additionally, our continued success depends on our ability to convert and retain new and existing clients and our ability to develop new consumer-oriented strategies or services to accommodate changing client, children or parent expectations and preferences around service delivery. Our future success depends on our ability to continue to meet the evolving needs and expectations of our clients, including enhancing our existing services. Obsolete processes and/or skill gaps could impede our ability to meet new or changing customer demand. Failure to meet these needs may result in client loss and reduced demand and could have a material impact on our business, financial condition and results of operations.
Our business may be affected by delays, disruptions or reductions in federally funded childcare subsidies or tuition reimbursements or from reductions in certain federal, state and local government programs.
A portion of our revenue is generated by families whose tuition is partially or fully subsidized by amounts received from government agencies. Additionally, we receive government assistance from various governmental entities to support the operations of our early childhood education and care centers and before- and after-school sites, primarily consisting of funds received for reimbursement of food costs, teacher compensation, and classroom supplies, and in certain cases, as incremental revenue.
When the federal government funds such programs, it directs funds to state and local governments for specified purposes, such as full or partial tuition subsidies, funding for certain universal pre-K programs and support for food programs. Some families depend on these programs to be able to afford to use our centers and we depend on these programs to offset expenses associated with our operations.
Government assistance programs that benefit our business may be impacted by appropriation lapses, budget cuts, curtailments, delays, changes in government administrations and leadership, shifts in government priorities, government responses to emergent issues, changes in program eligibility, general reductions in funding, government shutdowns, as well as our reputation or relationship with individual federal and state agencies. Additionally, government investigations into our industry may generate negative publicity and result in reduced assistance from government programs, which could harm our reputation and our business even if we are not involved in the matters being investigated.
In general, the alteration, reduction, suspension or pause of government assistance programs, particularly those related to child care, could result in reduced enrollment, reduced revenue and reduced offsets to our operating expenses, as well as increased operating and compliance costs.
Federal, state or local child care and early education benefit programs relying primarily on subsidies in the form of tuition assistance or tax credits could provide us with opportunities for expansion in new or existing markets. However, a federal, state or local universal benefit such as preschool, if offered primarily or exclusively through public schools or nonprofit entities, could be competitive with our programs and reduce the demand for services at our existing centers or sites and negatively impact the financial and operational model for our remaining programs. Some states and smaller political subdivisions already offer preschool through programs in which we may or may not participate. If these programs were to significantly expand or our participation is reduced, it could have an adverse effect on our business, financial condition or results of operations. Federal, state and local governments have proposed publicly funded universal child care, which could allow private, for-profit entities to be eligible for participation, but do not necessarily mandate such participation. It is unclear how previously proposed legislation or future proposals will progress in the current political and fiscal climate, or how states would implement such programs. Public programs have the ability to either expand or shrink our ability to serve additional children. The amount of public funding, the rates paid for early education programs, our eligibility to be a provider and the terms and conditions of the programs can have either a positive or negative effect on our business, financial condition and results of operations.
Acquisitions are an important part of our growth strategy and we have made, and intend to continue to make, acquisitions to add centers or sites, clients or expand into new markets, which may potentially include markets outside of the United States. We may also consider new service offerings and complementary companies, products or technologies, and from time to time may enter into other strategic transactions, such as investments and joint ventures. Acquisitions involve numerous risks, including potential difficulties in the integration of acquired operations, such as bringing new centers or sites through the re-licensing or accreditation processes, becoming subject to additional regulatory requirements, successfully implementing our curriculum programs, integration of systems and technology, diversion of management’s attention and resources in connection with an acquisition and its integration, loss of key employees or key service contract arrangements of the acquired operations, and failure of acquired operations to effectively and timely adopt our internal control processes and other policies. In addition, families receiving services from our acquisition targets may be disinclined to continue receiving services from our organization, resulting in post-closing revenue from acquired operations that is less than anticipated. Additionally, the acquisition of new service offerings or emerging services may present operational and integration challenges, particularly with respect to companies that have significant or complex operations or that provide services where we do not have significant prior experience. With any acquisition, the financial and strategic goals that were contemplated at the time of the transaction may not be realized due to increased costs, undisclosed liabilities not covered by insurance or by the terms of the acquisition, write-offs or impairment charges relating to goodwill and other intangible assets, and other unexpected integration costs. We also may not have success in identifying, executing and integrating acquisitions in the future. The occurrence of any of these risks could have an impact on our business, financial condition or results of operations, particularly in the event of a larger acquisition or concurrent acquisitions.
Our revenue and profitability may be affected if there are changes in the spending policies or budget priorities for government funding of child care and education.
A portion of our revenue and reimbursement of certain center operating expenses are derived from various federal, state and local government programs. For example, some of the government programs provide funding for full or partial subsidies of tuition at our centers, provide meals through a food program for low-income families and universal pre-K programs that provide for free pre-kindergarten programs for children ages three and four. When the federal government funds such programs, it directs funds to state and local governments for specified purposes, which purposes may include the programs listed above. When the federal government directs funds to state and local governments, the appropriations processes are often slow and can be unpredictable. Some programs, such as the food program, also require our centers to maintain eligibility in order to receive such funding and may also provide that losing eligibility for the program in one state could also result in losing eligibility in states across the country. Factors such as budget cuts, curtailments, delays, changes in leadership, shifts in priorities, changes in eligibility or general reductions in funding could reduce or delay the funding for government programs. Furthermore, the programs funding the COVID-19 Related Stimulus (as defined herein) are required to distribute all stimulus funding by December 31, 2024, and we do not expect to receive a material amount of funding after that date.
The recent changes in the U.S. Government Administration may result in substantial modifications to laws, regulations and government programs, including, but not limited to, those related to financial assistance and education. New executive orders and legislative actions could alter the business environment in which we operate. The current administration may implement new policies or reverse existing ones, affecting the availability of financial assistance for families that are currently eligible for such subsidies. The alteration of government assistance programs, particularly those related to child care, could affect the ability of some families to use our centers. Additionally, new regulations or changes to existing regulations could require us to modify our operations and incur additional expenses to comply with the new legal standards.
Our business may be adversely affected by changes in government programs, resulting from changes in legislation, both at the federal and state levels, changes in the state procurement process, changes in government leadership, emergence of other priorities and changes in the condition of the local, state or U.S. economy. Moreover, future reductions in government funding and the state and local tax bases could create an unfavorable environment, leading to budget shortfalls resulting in a decrease in funding for the relevant government programs. Any decreased funding may harm our recurring and new business materially if our clients are not able to find and obtain alternative sources of funding.
Our operations expose us to risks associated with public health crises and outbreaks of pandemics, epidemicsepidemics, or infectious or contagious diseases. For example, the COVID-19 pandemic and the recovery therefrom disrupted our operations and negatively impacted our business. Another future health crisis could have a serious adverse impact on the economy and on our business just as the COVID-19 pandemic and associated containment efforts did. PotentialAdditionally, adverseoutbreaks of infectious diseases in specific communities in which our centers and programs are located or outbreaks within our locations may adversely impact our business. These negative impacts tomay our business, financial condition and results of operations that could result from a health crisis, such as the COVID-19 pandemic, include, but are not limited toinclude:
significantlimits changes in the conditions of the markets we operate in may limiton our ability to provide our services, especially center-based child care and center-based backup child care, and may result inpotential center closures;
periodic classroom or center closures due to potential exposure, which may impact our reputation or impact parent or client confidence resulting in reduced demand or the adoption of alternative child care options;
challenges in staffing our centers due to illness, which may lead to limits on our ability to provide our services, and potential for decline in retention among our employees;
increases in our expenses given that we are self-insured for medical benefits provided to our employees;
reduced or shifting demand for our services due to adverse and uncertain economic and demographic conditions, including as a result of families or clients that have been adversely impacted, and/or increased unemployment, long-term shift to an at-home workforce and general effects of a broad-based economic recession or weakening economy in the affected communities;
These factors could place limitations onlimit our ability to operate effectivelyeffectively, increase our expenses, result in enrollment declines, lead to employee turnover, and couldotherwise have a material adverse effect on our business, financial condition and results of operations. In addition, the recovery from a health crisis may be slow and continue to impact our business.business For example, we experienced lingering impacts from the COVID-19 pandemic in the months that followedeven after the publicoutbreak stateis of emergency ended on May 11, 2023, including increased costs related to labor resulting from a constricted labor market and wage inflation. These increased costs, however, did not materially adversely affect our business and operations in fiscal 2023.contained. The full impact on our business from a public health crisis, such as the COVID-19 pandemic,crisis is difficult to predict and depends on numerous factors including the duration and extent of the crisis, the extent of imposed or recommended containment and mitigation measures, and the general economic consequences of such crisis.crisis on our clients.
We are subject to litigation and regulatory proceedings in the normal course of business and couldlikely will become subject to additional claims in the future. These proceedings have included, and in the future may include, matters involving personnel and employment issues, workers’ compensation, personal and property injury, disputes relating to acquisitions, governmental investigations and other proceedings and allegations of inappropriate, illegal or harmful acts to children at our child care centers or sites or through a third-party provider. We are, have also from time to time been, and in the future may be, subject to claims and matters alleging negligence, inadequate supervision, illegal, inappropriate, abusive or neglectful behavior, health and safety, or other grounds for liability arising from injuries or other harm to the people we serve, primarily children. From time to time, federal, state and local legislations also lengthen statutes of limitation, potentially exposing us to proceedings for longer periods of time. Some historical and current legal proceedings and future legal proceedings may purport to be brought as class actions on behalf of similarly situated parties including with respect to employment-related matters. We cannot be certain of the ultimate outcomes of any such claims, and resolution of these types of matters against us may result in center closures, license suspensions, significant fines, judgments or settlements, which could materially and adversely affect our business, financial condition and results of operations, particularly if the fines, judgments and settlements are uninsured or exceed insured levels. Any such proceeding could damage our reputation, force us to incur significant expenses in defense of such proceeding or action, distract our management, increase our costs of doing business or result in the imposition of financial liability.
We have identified a material weakness in our internal control over financial reporting and if our remediation of the material weakness is not effective, or if we fail to designremediate andthis maintainmaterial anweakness effectivein internal control over financial reporting, our ability to producea timely and accurate financial statementsmanner or at all, we may not be able to comply with applicableour lawsfinancial reporting obligations, which could expose us to legal and regulationsbusiness couldrisks beand impaired.uncertainties.
As discussed in Part IV, Item 9A of this Annual Report on Form 10-K, we have identified a material weakness in our internal control over financial reporting as of January 3, 2026. As a result of the material weakness, management has concluded that our internal control over financial reporting was not effective as of January 3, 2026. While we are actively engaged in the process of implementing a plan to remediate the identified material weakness, there can be no assurance that our actions will fully remediate the material weakness in a timely manner, if at all. The implementation of remediation measures will require validation and testing of the design and operating effectiveness of the respective controls over several financial reporting cycles. If the actions we take do not sufficiently remediate the material weakness in a timely manner, our ability to record, process and report financial information accurately could be adversely affected, and there may continue to be a reasonable possibility that these control deficiencies, or others, could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis.
If we are unable to remediate the identified material weakness in a timely manner, or at all, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures in the future, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be negatively affected, and we could become subject to stockholder litigation or investigations by the NYSE, the SEC or other regulatory authorities, which could require additional financial and management resources and harm our reputation. In addition, our ability to accurately and timely report our financial results could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our financial statements, a decline in our stock price, failure to comply with the NYSE’s continued listing requirements, which could result in the suspension or delisting of our common stock from the NYSE, and could in turn have a material adverse effect on our business, financial condition and results of operations.
We previously identified a material weakness in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weakness we identified 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.
This material weakness did not result in a misstatement to the consolidated financial statements, however, it could result in misstatements potentially impacting the annual or interim consolidated financial statements that would result in a material misstatement to the financial statements that would not be prevented or detected.
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.
Furthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to the material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, deficiencies in our internal control over financial reporting may be discovered in the future. Any failure to design or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our annual or interim consolidated financial statements.
Neither our management nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the SEC rules because no such evaluation has been required. Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until the filing of our second Annual Report on Form 10-K. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to design, implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that are filed with the SEC. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.
Risks Related to ourOur Indebtedness, Capital Structure, IndebtednessRequirements and Capital RequirementsStructure
Our substantial indebtedness could adversely affect our ability to obtain capital to fund our operations, limit our flexibility in operating our business, expose us to interest rate risk to the extent of our variable rate debt, and limit cash flow available to invest in the ongoing needs of our business.
We may face risks related to our indebtedness.
Our indebtedness and lease obligations could adversely affect our ability to raise additional capital to fund our operations, limit our flexibility in operating our business, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the debt instruments. We had $966.8$957.2 million in debt outstanding as of DecemberJanuary 28,3, 2024.2026. As of DecemberJanuary 28,3, 2024,2026, we also had $184.2$189.7 million available for borrowing collectively under our Credit Facilities, after giving effect to outstanding letters of credit of $55.8$72.8 million. AsDuring a result, an increase in interest rates could result in a substantial increase in interest expense. Inthe fiscal 2024,year ended January 3, 2026, our total interest expense was $170.5$84.0 million.
Management's Discussion & Analysis (MD&A)
New heading “Cost of services (excluding depreciation and impairment)”
New heading “Selling, general, and administrative expenses”
Removed heading “10-K 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.”
Removed heading “Components of Results of Operations”
Removed heading “Other (income) expense, net”
Removed heading “Factors Affecting the Comparability of our Results of Operations”
Removed heading “Common Stock Valuations”
Largest changes
“If the quantitative impairment test is performed over goodwill, the assessment considers both the income approach and the market approach and selects an approach or weighting of approaches, as deemed appropriate, to estimate a reporting unit's fair value. In an income approach discounted cash flows ("DCF") method, we utilize estimates and assumptions including forecasted future cash flows, the determination of an appropriate discount rate, tax rate, and terminal growth rate. …”see in full comparison
“If the quantitative impairment test is required, goodwill is tested for impairment by determining if reporting unit carrying values exceed their fair values. Fair value is estimated using an income approach model based on the present value of expected future cash flows utilizing a risk adjusted discount rate. The discount rate represents the weighted average cost of capital, which is reflective of a market participant’s view of fair value given current market conditions, expected rate of return, capital structure, debt costs, and peer company comparisons. …”see in full comparison
“Cost of services (excluding depreciation and impairment)”see in full comparison
Income tax expensesee in full comparisondecreasedincreased by$12.8$4.9 million for fiscal20242025 as compared to fiscal2023.2024. The effective tax rate was (20.9)% for fiscal 2025 as compared to (18.7)% for fiscal20242024.as comparedCompared to21.1%the statutory rate, the difference in the effective tax rate for fiscal2023.2025 was primarily due to nondeductible goodwill impairment and the partial release of the receivable related to uncertain tax positions as a result of the portion of ERC recognized, partially offset by the nontaxable ERC and state income tax benefit recognized during fiscal 2025. Compared to the statutory rate, the difference in the effective tax rate for fiscal 2024 was primarily due to nondeductibleequity-basedstock-based compensation related to the PIUs and the partial release of the receivable related to uncertain tax positions as a result of the portion of ERC recognized, partially offset by the nontaxable ERC and state income tax benefit recognized during fiscal 2024.Compared to the statutory rate, the difference in the effective tax rate for fiscal 2023 was primarily due to state income taxes, partially offset by true-ups of the 2022 tax provision and federal tax credits.
“Impairment losses increased by $193.5 million, or 1836.9%, for fiscal 2025 as compared to fiscal 2024. This increase was driven by a $178.0 million goodwill impairment as a result of testing performed during the fourth quarter of fiscal 2025 triggered by the further deterioration in our market capitalization from a continued decline in our stock price. Additionally, property and equipment impairment increased by $15.6 million due to more centers with lower operational performance and reduced cash flow projections during fiscal 2025. …”see in full comparison
We test goodwill and indefinite-lived intangible assets for impairment on an annual basis in the fourth quarter or more frequently if impairment indicators exist. Potential indicators of impairment include macroeconomic conditions, industry and market considerations, actual and projected financial performance and cash flows, entity-specific events, and changes in our stock price in relation to the carrying value of our reporting units, among other relevant factors. Impairment of goodwill is tested at the reporting unit level. Our reporting units consists of the early childhood education centers reporting unit and the before- and after-school sites reporting unit. We may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset is less than its carrying amount. If, after assessing the totality of events and circumstances, we determine that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is greater than its carrying amount, the quantitative impairment test is unnecessary. If a reporting unit or indefinite-lived intangible asset does not pass the qualitative assessment, or if we choose to bypass the qualitative assessment, a quantitative test is performed.see in full comparison
Full comparison: every changed paragraph (139)
The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements and notes thereto for the fiscal yearsyear ended DecemberJanuary 28,3, 2024, December 30, 2023, and December 31, 20222026 included elsewherein inItem 8 of this Annual Report on Form 10-K. This discussion and analysis primarily addresses the 53-week fiscal year ended January 3, 2026 ("fiscal 2025") and the 52-week fiscal year ended December 28, 2024 ("fiscal 2024") and comparisons between these years. Discussion and analysis as well as comparisons of the fiscal years ended December 28, 2024 and December 30, 2023 and comparisons between these years. Discussion and analysis of the fiscal year ended December 31, 2022 and comparison of the fiscal years ended December 30, 2023 and December 31, 2022 that are not included elsewhere in this Annual Report on Form 10-K can be found within "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our finalprevious prospectusAnnual Report on Form 10-K for the fiscal year ended December 28, 2024 filed with the SEC on OctoberMarch 9,21, 2024 pursuant to Rule 424(b)(4).2025. Some of the information included in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, 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 included elsewhere in this Annual Report on Form 10-K 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.
10-K 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.
KinderCare Learning Companies, Inc. is thea largest privateleading provider of high-quality ECE in the United States by center capacity.States. We are a mission-driven organization, rooted in a commitment to providing all children with the very best start in life. We serve children ranging from six weeks to 12 years of age across our market-leading footprint of 1,5741,601 early childhood education centers with center capacity for 210,135214,803 children and 1,0251,153 before- and after-school sites located in 4041 states and the District of Columbia as of DecemberJanuary 28,3, 2024.2026.
On October 8, 2024, our registration statement on Form S-1, as amended (File No. 333-281971) ("Form S-1") related to our IPO, was declared effective by the SEC, and our IPO was completed on October 10, 2024. In connection with our IPO, the Company converted Class A and Class B common stock, both with a par value of $0.0001 per share, to common stock, with a par value of $0.01 per share, at a ratio of 8.375 shares of Class A and Class B common stock to one share of common stock, which became effective immediately following the effectiveness of our registration statement on Form S-1 for our IPO ("Common Stock Conversion"). As a result, prior periods presented in our consolidated financial statements and notes thereto as of Decemberand 28,for 2024the fiscal year ended January 3, 2026 have been adjusted to retrospectively reflect the Common Stock Conversion. Refer to Note 1 and Note 17 within the consolidated financial statements included elsewherein inItem 8 of this Annual Report on Form 10-K for further information.
Factors Affecting the Comparability of our Results of Operations
Fiscal Period
We report on a 52- or 53-week fiscal year comprised of 13- or 14-week fourth quarters, respectively, with the fiscal year ending on the Saturday closest to December 31. Fiscal 2025 is a 53-week fiscal year as compared to fiscal 2024 which is a 52-week fiscal year. The 53rd week in fiscal 2025 contributed an additional $45.1 million of revenue and an estimated $12 million of adjusted EBITDA.
In October 2024, we sold 27.6 million shares of our common stock through our IPO, including 3.6 million shares sold pursuant to the underwriters' exercise in full of their option to purchase additional shares. Net proceeds of $616.1 million, after underwriting discounts and offering costs, were recognized within additional paid-in capital on the consolidated financial statements. These net proceeds were primarily utilized to repay $608.0 million of outstanding principal on our first lien term loan ("First Lien Term Loan Facility"), which provided us the ability to enter into a refinancing amendment to the credit agreement, dated as of June 12, 2023 (as subsequently amended and restated) (the "Credit Agreement") to reduce the interest rates on our senior secured credit facilities. We recognized a loss on extinguishment of debt of $24.8 million within interest expense as a result of the partial repayment and refinancing of our senior secured credit facilities.
In conjunction with our IPO, we modified the terms of our stock-based award plans. The 2022 Incentive Award Plan ("2022 Plan") was amended to provide for share settlement of all unexercised stock options and unvested restricted stock units ("RSUs") when stock options are exercised and RSUs vest according to their original vesting schedules. As a result of this modification, the previously liability-classified stock options and RSUs were reclassified as equity and the awards will not be remeasured at fair value each reporting period. The 2015 Equity Incentive Plan ("PIUs Plan") was modified to accelerate the vesting of all outstanding profit interest units ("PIUs"). As certain PIUs were improbable to vest prior to the modification and became probable to vest subsequent to the modification, we recognized the full fair value of the awards at the date of modification. As a result of the modification, we recognized $113.1 million as stock-based compensation expense within selling, general, and administrative expenses. The PIUs were settled in shares of our common stock in accordance with the plan of dissolution and liquidation of our parent company effectively terminating the PIUs Plan.
Our IPO, as well as the transactions we entered into in connection with our IPO, have affected the comparability of our operating results for the periods presented. Refer to Note 12 and Note 17 within the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further information.
During 2020 and 2021, the United States government approved several incremental stimulus funding programs for ECE providers in response to the coronavirus disease 2019 ("COVID-19") pandemic, and as a result, we have received grants in the form of revenue or cost reimbursements ("COVID-19 Related Stimulus"). We recognized $0.7 million and $63.3 million during fiscal 2025 and fiscal 2024, respectively, in funding for reimbursement of center operating expenses in cost of services (excluding depreciation and impairment). The federal programs funding the COVID-19 Related Stimulus were required to distribute all stimulus funding by December 31, 2024, and we do not expect to receive a material amount of funding after that date. The variability of funding provided by COVID-19 Related Stimulus has impacted the comparability of our operating results for the periods presented.
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 fiscal 2022, we applied for ERC for qualified wages and benefits paid throughout fiscal 2021 and fiscal 2020. Reimbursements of $62.0 million in cash tax refunds for ERC claimed, along with $2.3 million in interest income, were received during fiscal 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 fiscal 2025 and fiscal 2024, we recognized $30.1 million and $23.4 million of ERC in cost of services (excluding depreciation and impairment), along with $1.3 million and $0.5 million in interest income, respectively. The timing in recognition of the remaining deferred ERC liabilities will have an impact on the comparability of future periods.
The following factors, among others described herein, have been important to our business and we expect them to impact our results of operations and financial condition in future periods:
Increase revenues through improved occupancy and consistent price increases. Our future revenue growth is in part dependent on us continuing to grow revenues across our portfolio of centers. We invest in developing our brand, which has become widely recognized in the ECE market. Although we expect marketing activities to increase our cost of services, we expect them to positively impact our results of operations in the future.
Occupancy improvement: We aim to improve occupancy rates across our portfolio. Historically, we increased our average occupancy through a combination of strategic investments in technology and talent, as well as implementing best practices at our centers. We invest significant resources into our technology infrastructure to support our center and site operations and interactions with families. As our occupancy grows, we have an opportunity to gain further operating leverage and improve profitability as we allocate fixed costs over more enrollments.
Pricing model designed for continued growth: We expect to implement regular price increases to support center re-investment and enhance our operational performance. Tuition increases are standard across the industry, and we view them as a reliable component of our business model. Additionally, while we expect rates to increase each year, the out-of-pocket costs paid by parents with children who continue to enroll in our programs decline on an annual basis as tuition costs decrease as children age-up (e.g., three-year olds have lower tuition costs than two-year olds). Assuming consistent enrollment across ages, tuition increases have an immediate positive impact to revenue.
Expand footprint through greenfield development and strategic acquisitions. Our long-term revenue growth depends on the expansion of our footprint, either through opening new greenfield centers or acquiring centers. We have a rigorous integration approach to transition acquired centers into our portfolio that allow us to deliver a consistent level of quality, as expected by our clients and accreditors. Given the significant fragmentation in our industry, we expect to continue to pursue acquisitions complementary to our existing portfolio. Expansion will require cash investment, but we anticipate a long-term increase in both revenue and profit.
Develop and nurture other revenue streams and expand service offerings. Supporting services adjacent to our ECE business provide diversification and drives incremental revenue. Leveraging our employer relationships, our business-to-business offerings, which include tuition benefits programs and employer-sponsored centers, are poised for growth as employers are increasingly recognizing the importance of supporting their employees with access to quality ECE programs. In the before- and after-school programs market we have contracts with approximately 2% of the over 64,000 elementary schools in the United States, providing significant opportunity to continue to grow our footprint.
Access to governmental funding and advocacy to support the ECE industry. We receive various forms of federal, state, and local governmental funding to support our operations and serve more families including reimbursements for food costs through the federal Child and Adult Food Care Program as well as grants for capital purchases, teacher compensation, and other center operating costs. In addition, we proactively work with prospective and current families to help them access public subsidy funding. As a market leader, we believe we are well positioned to advocate for continued and increased government support for the broader ECE industry.
Adapt to changes in seasonal demand for child care and other services. Enrollments at centers and before- and after-school sites are generally higher in the spring and fall back-to-school period and lower during the summer and calendar year-end holidays when families may be on vacation or utilizing alternative child care arrangements. As a result, 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.
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 and sites as the number of centers and sites at the beginning of the period plus openings and acquisitions, minus any permanent closures for the period. A permanently closed center or site is a center or site that has ceased operations as of the end of the reporting period andthat management does not intend on reopeningreopening. During fiscal 2025, management updated the center.definition Weof definetotal before- and after-school sites to include sites that are temporarily closed as a result of the numbersummer ofseason sitesto asmore accurately reflect the total sites that were operationaloperating induring the lastyear. monthPrior ofperiods presented were adjusted to reflect the period,updated whichdefinition reflectsfor thecomparative seasonal impacts of temporary closures at the beginning of summer.purposes.
As of DecemberJanuary 28,3, 2024,2026, we had 1,5741,601 early childhood education centers with a center capacity for 210,135214,803 children as compared to 1,5571,574 early childhood education centers as of December 30,28, 2023,2024, with a center capacity for 209,998210,135 children. During fiscal 2025, total centers increased by 27 due to acquiring 26 centers and opening 20 centers, partially offset by 19 permanent center closures.
During fiscal 2024, total centers increased by 17 due to acquiring 23 centers and opening 12 centers, partially offset by 18 permanent center closures. Total before- and after-school sites increased by 77128 during fiscal 20242025 as compared to the number of before- and after-school sites as of December 30,28, 20232024 due to opening 164236 sites, partially offset by 87108 site closures.
Average weekly ECE FTEs increaseddecreased by 442,2,901, or 0.3%,2.0%, for fiscal 20242025 as compared to fiscal 20232024 primarily due to newlower centers,FTEs partiallyat offset by closed centers.same-centers.
ECE same-center occupancy increaseddecreased by 90200 basis points for fiscal 20242025 as compared to fiscal 2023, driven by a decrease in average center capacity at same-centers,2024, primarily due to servinglower youngerenrollment students,at which can have slightly smaller class sizes.same-centers.
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.performance. The following table is in thousands.thousands:
ECE same-center revenue increased by $105.2$61.2 million, or 4.5%,2.5%, for fiscal 20242025 as compared to fiscal 2023.2024 primarily due to the impact of the 53rd week in fiscal 2025, which contributed $43.5 million in additional ECE same-center revenue. During the comparable 52- week periods, ECE same-center revenue growth of $103.0 million, or 4.5%, was driven by centers that were classified as same-centers as of both December 28, 2024 and December 30, 2023. The remaining $2.2$31.8 million increase in ECE same-center revenue growth was driven by the net impact of new and acquired centers not yet classified as same-centers as of December 30,28, 20232024 and center closures as of January 3, 2026. This growth was partially offset by a decrease of $14.1 million, or 0.6%, in revenue at centers that were classified as same centers as of both January 3, 2026 and December 28, 2024.
Components of Results of Operations
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 $942.1 million and $795.9 million during fiscal 2024 and fiscal 2023, respectively.
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.
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 include costs, primarily personnel related, associated with field management, corporate oversight, and support of our centers and sites.
Our impairment losses relate to property and equipment, operating right-of-use assets, and definite-lived intangible assets.
Interest expense includes long-term debt interest, gain or loss on interest rate derivatives, amortization of debt issuance costs, financing lease interest, and gain or loss on extinguishment of debt.
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, sale and leaseback transactions, and realized and unrealized gains and losses related to investment trust assets.
Income taxes primarily consist of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, differences between the United States generally accepted accounting principles ("GAAP") and tax income and deductions, and the tax effect from uncertain tax positions, as applicable.
Factors Affecting the Comparability of our Results of Operations
In October 2024, we sold 27.6 million shares of our common stock through our IPO, including 3.6 million shares sold pursuant to the underwriters' exercise in full of their option to purchase additional shares. Net proceeds of $616.1 million, after underwriting discounts and offering costs, were recognized within additional paid-in capital on the consolidated financial statements. These net proceeds were primarily utilized to repay $608.0 million of outstanding principal on our first lien term loan ("First Lien Term Loan Facility"), which provided us the ability to enter into a refinancing amendment to the credit agreement, dated as of June 12, 2023 (as subsequently amended and restated) (the "Credit Agreement") to reduce the interest rates on our senior secured credit facilities. We recognized a loss on extinguishment of debt of $24.8 million within interest expense as a result of the partial repayment and refinancing of our senior secured credit facilities. We have incurred expenses during our transition to a public company that we had not previously incurred as a private company, including costs associated with public company reporting requirements of the Securities Exchange Act of 1934, which have impacted our results of operations.
In conjunction with our IPO, we modified the terms of our equity-based award plans. The 2022 Incentive Award Plan ("2022 Plan") was amended to provide for share settlement of all unexercised stock options and unvested restricted stock units ("RSUs") when stock options are exercised and RSUs vest according to their original vesting schedules. As a result of this modification, the previously liability-classified stock options and RSUs were reclassified as equity and the awards will not be remeasured at fair value each reporting period. The 2015 Equity Incentive Plan ("PIUs Plan") was modified to accelerate the vesting of all outstanding PIUs. As certain profit interest units ("PIUs") were improbable to vest prior to the modification and became probable to vest subsequent to the modification, we recognized the full fair value of the awards at the date of modification. As a result of the modification, we recognized $113.1 million as equity-based compensation expense within selling, general, and administrative expenses. The PIUs were settled in shares of our common stock in accordance with the plan of dissolution and liquidation of our parent company effectively terminating the PIUs Plan.
Our IPO, as well as the transactions we entered into in connection with our IPO, have affected the comparability of our operating results for the periods presented and are expected to have an impact on the comparability of future periods. Refer to Note 13 and Note 17 within the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information.
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 $63.3 million and $181.9 million during fiscal 2024 and fiscal 2023, respectively, in funding for reimbursement of center operating expenses in cost of services (excluding depreciation and impairment), as well as $0.4 million and $3.0 million during fiscal 2024 and fiscal 2023, respectively, in revenue arising from COVID-19 Related Stimulus. The federal programs funding the COVID-19 Related Stimulus were required to distribute all stimulus funding by December 31, 2024, and we do not expect to receive a material amount of funding after that date. The variability of funding provided by COVID-19 Related Stimulus has impacted the comparability of our operating results for the periods presented, and the conclusion of the programs will have an impact on the comparability of future periods.
The Employee Retention Credit (“ERC”), established by the Coronavirus Aid, Relief and Economic Security Act and extended and expanded by several subsequent governmental acts, allows eligible businesses to claim a per employee payroll tax credit based on a percentage of qualified wages, including health care expenses, paid during calendar year 2020 through September 2021. During fiscal 2022, we applied for ERC for qualified wages and benefits paid throughout fiscal 2021 and fiscal 2020. Reimbursements of $62.0 million in cash tax refunds for ERC claimed, along with $2.3 million in interest income, were received during fiscal 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 fiscal 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 fiscal 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.
We operate as a single operating segment to reflect the way our chief operating decision maker reviews and assesses the performance of the business. See Note 1 and Note 23 of our consolidated financial statements included elsewherein inItem 8 of this Annual Report on Form 10-K for additional information regarding the Company's accounting policies and enhanced segment disclosures. The period-to-period comparisons below of financial results are not necessarily indicative of future results.
The following table sets forth our results of operations including as a percentage of revenue for fiscal 20242025 and fiscal 20232024 (in thousands, except per share data and percentages):
Comparison of the Fiscal Years Ended January 3, 2026 and December 28, 2024 and December 30, 2023
Revenue
Total revenue increased by $152.9$70.3 million, or 6.1%,2.6%, for fiscal 20242025 as compared to fiscal 2023.2024. The 53rd week in fiscal 2025 contributed an additional $45.1 million of revenue.
Revenue from early childhood education centers increased by $121.2$51.6 million, or 5.2%,2.1%, for fiscal 20242025 as compared to fiscal 2023,2024 primarily due to the impact of the 53rd week in fiscal 2025. During the comparable 52- week periods, revenue increased $7.3 million, or 0.3%, of which approximately 5%2.2% was from higher tuition ratesrates, whilepartially enrollmentoffset remainedby relatively1.9% consistent.from lower enrollment.
The $51.6 million increase in revenue from early childhood education centerscenter revenue for fiscal 2025 as compared to fiscal 2024 was primarilycomprised drivenof by $105.2$61.2 million higher ECE same-center revenue.revenue, Additionally,partially offset by $9.6 million lower revenue from new and acquired centers not yet classified as same centers increased by $17.2 million during fiscal 2024, partially offset byand center closures.
Revenue from before- and after-school sites increased by $31.7$18.7 million, or 19.2%,9.5%, for fiscal 20242025 as compared to fiscal 20232024 primarily due to opening new sites, increased enrollment, and offering more summer day camps.sites.
Cost of services (excluding depreciation and impairment)
Cost of services (excluding depreciation and impairment) increased by $95.6 million, or 4.7%, for fiscal 2025 as compared to fiscal 2024. This increase was driven by $43.9 million higher personnel costs due to wage rate and salary increases as well as higher health insurance costs, partially offset by lower labor hours and grant-related bonuses. Additionally, rent expense increased $20.0 million driven by new and acquired centers as well as contractual rent increases. Higher cost of services (excluding depreciation and impairment) was also attributable to $17.9 million lower government assistance due to a decrease in cost reimbursements, primarily related to the conclusion of certain COVID-19 Related Stimulus funding, partially offset by higher ERC recognized in fiscal 2025 as compared to fiscal 2024 in connection with the timing of tax statute of limitations and qualifying creditable wages. Lastly, other center operating expenses increased by $13.9 million as a result of operating more centers and sites, driven by higher janitorial and utilities costs, food and supplies, as well as property taxes.
Cost of services (excluding depreciation and impairment) increased by $208.2 million, or 11.4%, for fiscal 2024 as compared to fiscal 2023. This increase was primarily driven by a $118.6 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 $75.9 million due to wage rate and labor hour increases as well as benefits cost increases, partially offset by lower grant related bonuses. Additionally, other center operating expenses increased by $37.1 million primarily as a result of higher rent expense due to new centers and the impact of a sale and leaseback transaction in fiscal 2023, as well as increased advertising spend and insurance costs and premiums. These increases were partially offset by $23.4 million in ERC recognized during fiscal 2024.
Depreciation and amortization increased by $8.6$6.4 million, or 7.9%,5.4%, for fiscal 20242025 as compared to fiscal 2023.2024. This increase was primarily due to higher depreciation expense of $8.8 million as a result of additionalassets capitalplaced expendituresinto inservice fiscalfrom 2023 as well as depreciation of propertynew and equipment at acquired and new centers.
Selling, general, and administrative expenses
Selling, general, and administrative expenses increaseddecreased by $135.1$125.8 million, or 46.9%,29.7%, for fiscal 20242025 as compared to fiscal 2023.2024. This increasedecrease was primarily driven by a $131.3$138.7 million increaselower in equity-basedstock-based compensation expense and bonus expense in fiscal 2025 as compared to fiscal 2024 primarily as a result of the October 2024 modification to the PIUs Plan, which accelerated the vesting of outstanding PIUs.PIUs, Theas increasewell wasas alsothe drivenMarch by2024 $5.0distribution millionto higherPIU meetingsholders and a related bonus to holders of restricted stock units and stock options. Additionally, meeting and travel expenseexpenses decreased by $6.4 million in fiscal 2025 as compared to fiscal 2024 primarily attributable to oura field leadership summit held during fiscal 2024 and $3.0 million in costs related to our transition to an integrated cloud-based enterprise resource planning system.2024. These increasesdecreases were partially offset by $8.0an $11.3 million lowerincrease bonusin expense.personnel Seecosts Notedue 17to higher salaries, benefits, and severance expenses, partially offset by optimized headcount, as well as a $6.6 million increase in computer costs due to software license fees and amortization of ourdeferred consolidatedcloud financialcomputing statements included elsewhere in this Annual Report on Form 10-K for further information on the impact of the modification to the PIUs Plan and related equity-based compensation expense.costs.
Impairment losses increased by $193.5 million, or 1836.9%, for fiscal 2025 as compared to fiscal 2024. This increase was driven by a $178.0 million goodwill impairment as a result of testing performed during the fourth quarter of fiscal 2025 triggered by the further deterioration in our market capitalization from a continued decline in our stock price. Additionally, property and equipment impairment increased by $15.6 million due to more centers with lower operational performance and reduced cash flow projections during fiscal 2025. Refer to Note 7 of our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further information on our goodwill impairment analysis.
Interest expense decreased by $86.6 million, or 50.8%, for fiscal 2025 as compared to fiscal 2024. Of this decrease, $67.6 million is driven by lower outstanding principal and interest rates on the First Lien Term Loan Facility as a result of the October 2024 repayment and subsequent repricing amendments in October 2024 and July 2025 combined with $19.3 million attributable to lower losses on extinguishment of debt from the July 2025 repricing as compared to the October 2024 amendments.
What changed in the latest 10-Q
Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 3, 2026 as filed with the SEC on March 13, 2026.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Comparison of the Six Months Ended July 4, 2026 and June 28, 2025”
Removed heading “Cost of services (excluding depreciation and impairment)”
Removed heading “Selling, general, and administrative expenses”
Removed heading “Other expense, net”
Largest changes
“Cost of services (excluding depreciation and impairment)”see in full comparison
Income taxes decreasedsee in full comparison$8.4$16.3 million to an income tax benefit for the three months endedAprilJuly 4,20262026, as compared to income tax expense for the three months endedMarchJune29,28, 2025. The effective tax rate was0.2%16.8% for the three months endedAprilJuly 4,20262026, as compared to27.0%27.3% for the three months endedMarchJune29,28, 2025. Compared to the statutory rate, the reduction in the effective tax rate for the three months ended July 4, 2026, was primarily due to a true up of the 2025 tax provision, partially offset by the relative impact of recurring nondeductible expenses which had a proportionally greater impact to the effective tax rate when applied to the loss before income taxes for the three months ended July 4, 2026. Compared to the statutory rate, the difference in the effective tax rate for the three months endedAprilJune4,28,20262025, was primarily due tonondeductiblethegoodwillimpactimpairment, partially offset byof state and local taxes.The effective tax rate for the three months ended March 29, 2025, was primarily driven by state and local taxes, nondeductible compensation and fringe benefit expenses, as well as changes in uncertain tax reserves.
“Income taxes decreased $24.6 million to an income tax benefit for the six months ended July 4, 2026, as compared to income tax expense for the six months ended June 28, 2025. The effective tax rate was 0.8% for the six months ended July 4, 2026 as compared to 27.2% for the six months ended June 28, 2025. Compared to the statutory rate, the reduction in the effective tax rate for the six months ended July 4, 2026 was primarily due to nondeductible goodwill impairment recorded during the first quarter of the fiscal year ending January 2, 2027. …”see in full comparison
“Impairment losses increased by $310.7 million, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025. This increase was driven by a $273.5 million goodwill impairment as a result of testing performed during the first quarter of fiscal 2026 triggered by the further deterioration in our market capitalization from a continued decline in our stock price. …”see in full comparison
“Impairment losses increased by $290.0 million for the three months ended April 4, 2026 as compared to the three months ended March 29, 2025. This increase was driven by a $273.5 million goodwill impairment as a result of testing performed during the first quarter of fiscal 2026 triggered by the further deterioration in our market capitalization from a continued decline in our stock price. …”see in full comparison
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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 six months ended AprilJuly 4, 2026 and MarchJune 29,28, 2025 included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated financial statements and notes thereto for the fiscal year ended January 3, 2026 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 13, 2026. 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.
KinderCare Learning Companies, Inc. (“the Company,” “we,” “us,” and “our”) is a leading provider of high-quality early childhood education (“ECE”) in the United States. We are a mission-driven organization, rooted in a commitment to providing all children with the very best start in life. We serve children ranging from six weeks to 12 years of age across our market-leading footprint of 1,6061,567 early childhood education centers with center capacity for 215,371210,539 children and 1,1591,128 before- and after-school sites located in 4142 states and the District of Columbia as of AprilJuly 4, 2026.
We measure and track the number of centers and sites because, as our number of centers and sites change, it highlights our geographic footprint and potential growth in revenue. We believe this information is useful to investors as an indicator of opportunity for revenue growth and operational expansion and can be used to measure and track our performance over time. We define the number of centers and sites as the number of centers and sites at the beginning of the period plus openings and acquisitions, minus any permanent closures for the period. A permanently closed center or site is a center or site that has ceased operations as of the end of the reporting period that management does not intend on reopening. During the three months ended June 28, 2025, management updated the definition of total before- and after-school sites to include sites that are temporarily closed as a result of the summer season to more accurately reflect the total sites that were operating during the year. Prior periods presented were adjusted to reflect the updated definition for comparative purposes.
As of AprilJuly 4, 2026, we operated 1,6061,567 early childhood education centers with a center capacity for 215,371210,539 children as compared to 1,5821,589 early childhood education centers as of MarchJune 29,28, 2025, with a center capacity for 211,767212,901 children. During the threesix months ended AprilJuly 4, 2026, total centers increaseddecreased by five34 due to 49 permanent center closures as part of our ongoing center optimization initiative, partially offset by opening threeeight centers and acquiring twoseven centers. During the threesix months ended MarchJune 29,28, 2025, total centers increased by eight15 due to bothacquiring acquiring14 centers and opening fiveeight centers, partially offset by twoseven permanent center closures.
As of AprilJuly 4, 2026, we operated 1,1591,128 before- and after-school sites, an increase of 12185 sites from 1,0381,043 before- and after-school sites as of MarchJune 29,28, 2025. Total before- and after-school sites decreased by 25 during the six months ended July 4, 2026 due to 67 permanent closures, partially offset by opening 42 sites. Total before- and after-school sites increased by six18 during the threesix months ended AprilJune 4,28, 20262025 due to opening 1747 sites, partially offset by 1129 permanent site closures. Total before- and after-school sites increased by 13 during the three months ended March 29, 2025 due to opening 19 sites, partially offset by six permanent site closures.
Average weekly ECE FTEs decreased by 6,013, or 4.0%, and 5,153, or 3.5%, for the three and six months ended July 4, 2026 as compared to the three and six months ended June 28, 2025, respectively, primarily due to lower FTEs at same-centers. The impact of center closures reduced average weekly ECE FTEs by approximately 120 basis points and 110 basis points for the three and six months ended July 4, 2026 as compared to the three and six months ended June 28, 2025, respectively.
Average weekly ECE FTEs for the three months ended April 4, 2026 decreased by 4,294, or 3.0%, as compared to the three months ended March 29, 2025 primarily due to lower FTEs at same-centers, partially offset by FTEs at new and acquired centers.
ECE same-center occupancy decreased by 310240 basis points and 230 basis points for the three and six months ended AprilJuly 4, 2026 as compared to the three and six months ended MarchJune 29,28, 20252025, respectively, primarily due to lower enrollment. For the three and six months ended July 4, 2026, our center optimization initiative positively impacted ECE same-center occupancy by approximately 70 basis points and 100 basis points, respectively, as a result of closing underperforming centers.
ECE same-center revenue decreased by $7.4$14.0 million, or 1.2%,2.2%, for the three months ended AprilJuly 4, 2026 as compared to the three months ended MarchJune 29,28, 2025. ECE same-center revenueThis decrease of $15.4 million was driven by $16.5 million lower revenue from centers that were classified as same-centers as of both AprilJuly 4, 2026 and MarchJune 29,28, 2025. ThisAdditionally, decreasesame-center wasrevenue decreased by $10.7 million due to center closures as of July 4, 2026. These decreases were partially offset by $8.0$13.2 million in ECE same-center revenue growth driven by the net impact of new and acquired centers not yet classified as same-centers as of MarchJune 29,28, 2025 and center closures as of April 4, 2026.2025.
ECE same-center revenue decreased by $25.9 million, or 2.1%, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025. This decrease was driven by $29.6 million lower revenue from centers that were classified as same-centers as of both July 4, 2026 and June 28, 2025. Additionally, same-center revenue decreased by $21.5 million due to center closures as of July 4, 2026. These decreases were partially offset by $25.2 million in ECE same-center revenue growth driven by the impact of new and acquired centers not yet classified as same-centers as of June 28, 2025.
The following table sets forth our results of operations including as a percentage of revenue for the three months ended AprilJuly 4, 2026 and MarchJune 29,28, 2025 (in thousands, except per share data and percentages):
The following table sets forth our results of operations including as a percentage of revenue for the six months ended July 4, 2026 and June 28, 2025 (in thousands, except per share data and percentages):
Comparison of the Three Months Ended AprilJuly 4, 2026 and MarchJune 29,28, 2025
Revenue
Total revenue increaseddecreased by $4.3$2.6 million, or 0.6%,0.4%, for the three months ended AprilJuly 4, 2026 as compared to the three months ended MarchJune 29,28, 2025.
Revenue from early childhood education centers decreased by $4.8$9.6 million, or 0.8%,1.5%, for the three months ended AprilJuly 4, 2026 as compared to the three months ended MarchJune 29,28, 2025. The decrease was driven from 3.0%4.0% lower enrollment, partially offset by 2.2%2.6% increase from higher tuition rates.
The $4.8$9.6 million decrease in revenue from early childhood education centers revenue for the three months ended AprilJuly 4, 2026 as compared to the three months ended MarchJune 29,28, 2025 was comprised of $7.4$14.0 million lower ECE same-center revenue, partially offset by $3.0a $4.4 million highernet increase in revenue from new and acquired centers that were not yet classified as same centers.same-centers.
Revenue from before- and after-school sites increased by $9.1$7.0 million, or 17.1%,13.4%, for the three months ended AprilJuly 4, 2026 as compared to the three months ended MarchJune 29,28, 2025 primarily due to higher rates and opening new sites and higher tuition rates.sites.
Cost of services (excluding depreciation and impairment)
Cost of services (excluding depreciation and impairment) increased by $34.7$48.0 million, or 6.7%,9.2%, for the three months ended AprilJuly 4, 2026 as compared to the three months ended MarchJune 29,28, 2025. ThisThe increase was driven by $18.3$30.1 million of Employee Retention Credits ("ERC") recognized during the three months ended June 28, 2025, which offsets cost of services (excluding depreciation and impairment) in the comparative period. The increase was also attributable to $10.8 million higher food,insurance, supplies, utilities,janitorial, and janitorialutilities costs, partially due to operating more centers and sites,expenses, combined with an increase in marketing spend. RentLastly, rent expense increased $8.2by $7.7 million due to new and acquired centers and sites as well as contractual rent increases. The increase was also attributable to $4.8 million higher personnel costs due to increased wage rates. Lastly, cost reimbursements from government assistance was $3.4 million lower following the conclusion of certain COVID-19 stimulus funding.
Depreciation and amortization increased by $1.1 million, or 3.7%, for the three months ended April 4, 2026 as compared to the three months ended March 29, 2025. This increase was primarily driven by higher depreciation expense as a result of assets placed into service from new and acquired centers.
Selling, general, and administrative expenses
Selling, general, and administrative expenses decreased by $0.6 million, or 0.8%, for the three months ended April 4, 2026 as compared to the three months ended March 29, 2025. This decrease was driven by lower stock-based compensation expense due to certain awards becoming fully vested in fiscal 2025 combined with the awards granted during the three months ended April 4, 2026 at a lower fair value than previously granted awards.
Impairment losses increased by $290.0 million for the three months ended April 4, 2026 as compared to the three months ended March 29, 2025. This increase was driven by a $273.5 million goodwill impairment as a result of testing performed during the first quarter of fiscal 2026 triggered by the further deterioration in our market capitalization from a continued decline in our stock price. Additionally, impairment of long-lived assets increased by $16.5 million due to more centers with reduced cash flow projections as a result of lower operational performance and centers identified for closure during the three months ended April 4, 2026.
Interest expense decreased by $1.9 million, or 9.4%, for the three months ended April 4, 2026 as compared to the three months ended March 29, 2025. This decrease was primarily driven by lower interest rates on the First Lien Term Loan Facility as a result of the July 2025 repricing amendment and lower outstanding principal, partially offset by losses on interest rate derivative contracts reclassified into net loss during the three months ended April 4, 2026 compared to gains reclassified into net income during the three months ended March 29, 2025.
InterestDepreciation incomeand amortization remained relatively consistent for the three months ended AprilJuly 4, 2026 as compared to the three months ended MarchJune 29,28, 2025.
Other expense, net
OtherSelling, expense,general, netand remainedadministrative relativelyexpenses consistentdecreased by $5.6 million, or 7.1%, for the three months ended AprilJuly 4, 2026 as compared to the three months ended MarchJune 29,28, 20252025. This decrease was driven by lower personnel costs primarily due to reduced incentive compensation expense reflective of operating performance and wascertain primarily comprised of net changes in realized and unrealized losses from investments held in deferredstock-based compensation assetawards trusts.becoming fully vested.
Impairment losses increased by $20.7 million, for the three months ended July 4, 2026 as compared to the three months ended June 28, 2025, primarily driven by more centers with reduced cash flow projections as a result of lower operational performances as well as center closures and early lease termination agreements executed during the three months ended July 4, 2026.
Interest expense decreased by $1.8 million, or 9.1%, for the three months ended July 4, 2026 as compared to the three months ended June 28, 2025. This decrease was primarily driven by lower interest rates on the First Lien Term Loan Facility as a result of the July 2025 repricing amendment and lower outstanding principal, partially offset by losses on interest rate derivative contracts reclassified into net loss during the three months ended July 4, 2026 compared to gains reclassified into net income during the three months ended June 28, 2025.
Interest income remained relatively consistent for the three months ended July 4, 2026 as compared to the three months ended June 28, 2025.
Other income, net increased by $1.3 million for the three months ended July 4, 2026 as compared to the three months ended June 28, 2025. The increase was primarily comprised of net changes in realized and unrealized gains from investments held in deferred compensation asset trusts.
Income taxes decreased $8.4$16.3 million to an income tax benefit for the three months ended AprilJuly 4, 20262026, as compared to income tax expense for the three months ended MarchJune 29,28, 2025. The effective tax rate was 0.2%16.8% for the three months ended AprilJuly 4, 20262026, as compared to 27.0%27.3% for the three months ended MarchJune 29,28, 2025. Compared to the statutory rate, the reduction in the effective tax rate for the three months ended July 4, 2026, was primarily due to a true up of the 2025 tax provision, partially offset by the relative impact of recurring nondeductible expenses which had a proportionally greater impact to the effective tax rate when applied to the loss before income taxes for the three months ended July 4, 2026. Compared to the statutory rate, the difference in the effective tax rate for the three months ended AprilJune 4,28, 20262025, was primarily due to nondeductiblethe goodwillimpact impairment, partially offset byof state and local taxes. The effective tax rate for the three months ended March 29, 2025, was primarily driven by state and local taxes, nondeductible compensation and fringe benefit expenses, as well as changes in uncertain tax reserves.
Comparison of the Six Months Ended July 4, 2026 and June 28, 2025
Total revenue increased by $1.7 million, or 0.1%, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025.
Revenue from early childhood education centers decreased by $14.5 million, or 1.1%, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025. The decrease was driven from 3.5% lower enrollment, partially offset by 2.4% increase from higher tuition rates.
The $14.5 million decrease in revenue from early childhood education centers for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025 was comprised of $25.9 million lower ECE same-center revenue, partially offset by a $11.5 million net increase in revenue from centers that were not classified as same-centers.
Revenue from before- and after-school sites increased by $16.1 million, or 15.3%, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025 primarily due to higher rates and opening new sites.
Cost of services (excluding depreciation and impairment) increased by $82.7 million, or 8.0%, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025. The increase was driven by $30.1 million of ERC recognized during the six months ended June 28, 2025, which offsets cost of services (excluding depreciation and impairment) in the comparative period. Additionally, the increase was attributable to $29.0 million higher insurance, janitorial, utilities and food costs, partially due to operating more centers and sites, combined with an increase in marketing spend. Rent expense increased $15.9 million due to new and acquired centers and sites as well as contractual rent increases. Lastly, the increase was also attributable to $5.0 million higher personnel costs due to increased wage rates.
Depreciation and amortization increased by $1.7 million, or 2.8%, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025. This increase was primarily due to higher depreciation expense as a result of assets placed into service from new and acquired centers.
Selling, general, and administrative expenses decreased by $6.2 million, or 4.1%, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025. This decrease was driven by lower personnel costs primarily due to reduced incentive compensation expense reflective of operating performance, as well as lower stock-based compensation due to certain awards becoming fully vested combined with awards granted during the current period at a lower fair value than previously granted awards.
Impairment losses increased by $310.7 million, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025. This increase was driven by a $273.5 million goodwill impairment as a result of testing performed during the first quarter of fiscal 2026 triggered by the further deterioration in our market capitalization from a continued decline in our stock price. Additionally, impairment of long-lived assets increased by $37.1 million due to more centers with reduced cash flow projections as a result of lower operational performance as well as centers closed or identified for closure and early lease terminations executed during the six months ended July 4, 2026.
Interest expense decreased by $3.7 million, or 9.2%, for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025. This decrease was primarily driven by lower interest rates on the First Lien Term Loan Facility as a result of the July 2025 repricing amendment and lower outstanding principal, partially offset by losses on interest rate derivative contracts reclassified into net loss during the six months ended July 4, 2026 compared to gains reclassified into net income during the six months ended June 28, 2025.
Interest income remained relatively consistent for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025.
Other income, net remained relatively consistent for the six months ended July 4, 2026 as compared to the six months ended June 28, 2025 and was primarily comprised of net changes in realized and unrealized gains from investments held in deferred compensation asset trusts.
Income taxes decreased $24.6 million to an income tax benefit for the six months ended July 4, 2026, as compared to income tax expense for the six months ended June 28, 2025. The effective tax rate was 0.8% for the six months ended July 4, 2026 as compared to 27.2% for the six months ended June 28, 2025. Compared to the statutory rate, the reduction in the effective tax rate for the six months ended July 4, 2026 was primarily due to nondeductible goodwill impairment recorded during the first quarter of the fiscal year ending January 2, 2027. Compared to the statutory rate, the difference in the effective tax rate for the six months ended June 28, 2025, was due to state and local income taxes.
EBIT is defined as net (loss) income adjusted for interest and income tax (benefit) expense. EBITDA is defined as EBIT adjusted for depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for impairment losses, stock-based compensation, 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.
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.
Represents impairment charges for goodwill and long-lived assets. Goodwill impairment recognized during the threesix months ended AprilJuly 4, 2026 wasof $273.5 million and was driven by the further deterioration in our market capitalization from a continued decline in our stock price.price during the first quarter of fiscal 2026. Impairments of long-lived assets for the periods presented was a result of 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, as well as centers closed or identified for closure.closure and early lease terminations executed. Refer to Note 45 and Note 10 of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q for further information on our goodwill and long-lived asset impairment analysis.
Represents non-cash stock-basedstock based compensation expense in accordance with Accounting Standards Codification (“ASC”) 718, Compensation: Stock Compensation.
Includes expense reimbursements and revenue arising from the COVID-19 pandemic, net of pass-through expenses incurred as a result of certain grant requirements. WeDuring both the three and six months ended June 28, 2025, we recognized $30.1 million of ERC offsetting cost of services (excluding depreciation and impairment) as well as $2.1 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 $1.9 million during both the three and six months ended June 28, 2025. Additionally, we recognized $0.7 million during the threesix months ended MarchJune 29,28, 2025 in funding for reimbursement of center operating expenses in cost of services (excluding depreciation and impairment).
Includes certain professional fees incurred for both contemplated and completed debt and equity transactions. For the threesix months ended MarchJune 29,28, 2025, other costs include $0.2 million in costs related to our IPO. These costs represent items management believes are not indicative of core operating performance.
Includes the tax effect of the non-GAAP adjustments, calculated using the appropriate federal and state statutory tax rate and the applicable tax treatment for each adjustment. The non-GAAP tax rate was 25.8%38.6% and 35.3% for the three and six months ended AprilJuly 4, 20262026, respectively, and March25.8% 29,for both the three and six months ended June 28, 2025. Our statutory rate is re-evaluated at least annually.
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. 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” included in Part II, Item 1A of this Quarterly Report on Form 10-Q as well as “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 3, 2026. 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.
As of AprilJuly 4, 2026, our Credit Agreement consists of a $962.0 million First Lien Term Loan Facility and a $262.5 million First Lien Revolving Credit Facility.
As of AprilJuly 4, 2026, there were no outstanding borrowings under the First Lien Revolving Credit Facility and we had an available borrowing capacity of $189.7$187.7 million after giving effect to the outstanding letters of credit under the Credit Agreement of $72.8$74.8 million.
The interest rates effective as of AprilJuly 4, 2026 were 6.45%6.48% on the First Lien Term Loan Facility, 2.00% on outstanding letters of credit in addition to a 0.125% fronting fee, and 0.25% on the unused portion of the First Lien Revolving Credit Facility.
The weighted average interest rate during the threesix months ended AprilJuly 4, 2026 for the First Lien Term Loan Facility was 6.42%.6.44%.
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 AprilJuly 4, 2026,2026 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.
As of AprilJuly 4, 2026, we were in compliance with all covenants of the Credit Agreement.
KLC insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-14 | Harrah Jessica |
Shares withheld for tax | 288 | $2.38 | $685 |
| 2026-09-14 | Amandi Anthony Michael |
Shares withheld for tax | 898 | $2.38 | $2.1K |
| 2026-08-03 | Barse David Michael |
Grant/award | 23,397 | — | — |
| 2026-06-15 | Harrah Jessica |
Shares withheld for tax | 288 | $4.13 | $1.2K |
| 2026-06-15 | Amandi Anthony Michael |
Shares withheld for tax | 898 | $4.13 | $3.7K |
| 2026-06-05 | Desravines Jean S. |
Grant/award | 43,210 | — | — |
| 2026-06-05 | Nuzzo Michael |
Grant/award | 37,038 | — | — |
| 2026-06-05 | Waxenberg Alyssa Sue |
Grant/award | 37,038 | — | — |
| 2026-06-05 | Deputy Christine |
Grant/award | 37,038 | — | — |
Well-known investors holding KLC (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 1,939,625 | $8.2M | 0.0% | Added 156% |
| Millennium Management (Israel Englander) | 2026-06-30 | 1,769,374 | $7.5M | 0.01% | Added 18% |
| D. E. Shaw & Co. | 2026-06-30 | 1,096,024 | $4.7M | 0.0% | Added 56% |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 1,075,535 | $4.6M | 0.01% | Added 759% |
| Two Sigma Investments | 2026-06-30 | 172,152 | $731.6K | 0.0% | Reduced 13% |
| Renaissance Technologies | 2026-06-30 | 208,528 | $458.8K | — | Sold out |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 109,067 | $239.9K | — | Sold out |