KinderCare Learning Companies, Inc. (NYSE: KLC) (“KinderCare”),
the nation’s largest private provider of high-quality early
childhood education by center capacity, today announced financial
results for the quarter ended September 28, 2024.
Third Quarter 2024 Highlights
- Revenue of $671.5 million
- Income from operations of $54.4 million
- Net Income of $14.0 million and net income per common share,
diluted (1) of $0.15
- On October 10, 2024, the Company completed its initial public
offering ("IPO"), in which it sold 27.6 million shares of common
stock, raising approximately $616.2 million in net proceeds
Non-GAAP financial measures
- Adjusted EBITDA (2) of $71.4 million
- Adjusted net income (2) of $4.3 million and adjusted net income
per common share, diluted (1)(2) of $0.05
“KinderCare delivered strong results during the third quarter of
2024, which marks our first earnings report as a public company,”
said Paul Thompson, KinderCare’s Chief Executive Officer. “Revenue
growth of 7.5% demonstrates our expanding ability to bring
high-quality early childhood education and care to more families
and communities. Our goal is to grow KinderCare's market share and
profitability on the strong foundation of our national scale in our
2,500 community-based centers and through growing program offerings
both at-work and before and after school.”
Mr. Thompson continued, "I'd like to thank the entire KinderCare
team for their hard work and dedication over the past year plus,
which culminated with our initial public offering and first day of
trading in early October. As we move forward, we are excited to
continue executing on our strategy to build confidence in kids,
families, and the future we share."
Third Quarter 2024 Financial Results
Total revenue increased $47.0 million, or 7.5%, to $671.5
million for the third quarter of 2024 compared to $624.5 million
for the third quarter of 2023.
Revenue from early childhood education centers increased by
$40.5 million, or 6.9%, for the third quarter of 2024 as compared
to the third quarter of 2023, of which approximately 6% was from
higher tuition rates and approximately 1% was attributable to
increased enrollment. Revenue from early childhood education
centers was higher by $10.5 million due to the timing of
registration fee billing in the third quarter of fiscal 2024
compared to the second quarter of fiscal 2023.
Revenue from before- and after-school sites increased by $6.5
million, or 16.8%, for the third quarter of 2024 as compared to the
third quarter of 2023 primarily due to opening new sites, offering
more summer day camps, and increased tuition rates.
Income from operations decreased $4.3 million, or 7.4%, to $54.4
million for the third quarter of 2024 compared to $58.7 million for
the third quarter of 2023. The decrease in income from operations
was primarily due to a $52.7 million increase in cost of services
(excluding depreciation and amortization) as a result of $20.0
million lower cost reimbursements from COVID-19 Related Stimulus
recognized and increased personnel costs, offset by increased total
revenue as noted above. Net income decreased $2.0 million, or
13.0%, to $14.0 million for the third quarter of 2024 compared to
$16.0 million for the third quarter of 2023. The decrease in net
income was primarily due to the decrease in income from operations
noted above, partially offset by other income and a lower effective
tax rate. Net income per common share, diluted (1) was $0.15 for
the third quarter of 2024 compared to $0.18 for the third quarter
of 2023.
Adjusted EBITDA (2) increased $14.4 million, or 25.1%, to $71.4
million in the third quarter of 2024 compared to $57.0 million in
the third quarter of 2023, primarily due to increased revenue from
both our early childhood education centers and before- and
after-school sites. Adjusted net income (2) increased $7.7 million,
or 225.4%, to $4.3 million for the third quarter of 2024 compared
to an adjusted net loss (2) of $3.4 million for the third quarter
of 2023. Adjusted net income per common share, diluted (1)(2) was
$0.05 for the third quarter of 2024 compared to adjusted net loss
per common share, diluted (1)(2) of $0.04 for the third quarter of
2023.
As of September 28, 2024, the Company operated 1,573 early
childhood education centers and 1,018 before- and after-school
sites.
(1)
On October 8, 2024, the Company
effected a common stock conversion, in which Class A and Class B
common stock were converted to common stock at a ratio of 8.375 to
one. All current and prior period outstanding shares and per share
amounts have been adjusted to retrospectively reflect the
conversion.
(2)
Adjusted EBITDA, adjusted net
income (loss), and adjusted net income (loss) per common share are
non-GAAP financial measures. Reconciliations of these non-GAAP
financial measures to the comparable GAAP measures are included in
the tables at the end of this press release.
Balance Sheet and Liquidity
As of September 28, 2024, the Company had $137.2 million of cash
and cash equivalents and $104.2 million of available borrowing
capacity under the revolving credit facility, after giving effect
to the outstanding letters of credit of $55.8 million.
During the nine months ended September 28, 2024, we generated
$156.7 million in cash provided by operating activities, compared
to $307.7 million during the same period in 2023, a decrease of
$151.0 million, primarily due to lower cost reimbursements from
COVID-19 Related Stimulus and the deferred recognition of the
employee retention credit ("ERC") and collections on grants
receivable in the prior period, partially offset by revenue growth
and timing of interest payments in the current period.
Conference Call and Webcast
Management will host a conference call today at 5:00 pm ET to
discuss the financial results for the third quarter of 2024. The
conference call will be webcast live via our investor relations
website https://investors.kindercare.com/overview/default.aspx or
via this link. A replay of the webcast will be made available on
our investor relations website at the conclusion of the event.
Interested parties may also access the conference call live over
the phone by dialing 1-800-579-2543 (Toll-free) or 1-785-424-1789
(Toll) and referencing conference ID “KC3Q24”. Participants are
asked to dial in a few minutes prior to the call to register.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Statements in this press release and on the related
teleconference that express a belief, expectation or intention, as
well as those that are not historical fact, are forward-looking
statements. These statements include, but are not limited to,
statements about the Company’s financial position; business plans
and objectives; general economic and industry trends; operating
results; and working capital and liquidity and other statements
contained in this presentation that are not historical facts. When
used in this press release and on the related teleconference, words
such as “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,”
“seek,” “vision,” or “should,” or the negative thereof or other
variations thereon or comparable terminology. They involve a number
of risks and uncertainties that may cause actual events and results
to differ materially from such forward-looking statements. These
risks and uncertainties include, but are not limited to: our
ability to address changes in the demand for child care and
workplace solutions; our ability to adjust to shifts in workforce
demographics, economic conditions, office environments and
unemployment rates; our ability to hire and retain qualified
teachers, management, employees, and maintain strong employee
engagement; the impact of public health crises, such as the
COVID-19 pandemic, on our business, financial condition and results
of operations; our ability to address adverse publicity; changes in
federal child care and education spending policies and budget
priorities; our ability to acquire additional capital; our ability
to successfully identify acquisition targets, acquire businesses
and integrate acquired operations into our business; our reliance
on our subsidiaries; our ability to protect our intellectual
property rights; our ability to protect our information technology
and that of our third-party service providers; our ability to
manage the costs and liabilities of collecting, using, storing,
disclosing, transferring and processing personal information; our
ability to manage payment-related risks; our expectations regarding
the effects of existing and developing laws and regulations,
litigation and regulatory proceedings; our ability to maintain
adequate insurance coverage; and the occurrence of natural
disasters, environmental contamination or other highly disruptive
events; and other risks and uncertainties set forth under “Risk
Factors” in the final prospectus filed with the Securities and
Exchange Commission ("SEC") on October 9, 2024, pursuant to Rule
424(b) under the Securities Act, for the Company’s IPO and in its
other filings with the SEC. KinderCare does not undertake to update
any forward-looking statements made in this press release to
reflect any change in management's expectations or any change in
the assumptions or circumstances on which such statements are
based, except as otherwise required by law.
Use of Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures,
including EBIT, EBITDA, adjusted EBITDA, adjusted net income
(loss), and adjusted net income (loss) per common share. Tables
showing the reconciliation of these non-GAAP financial measures to
the comparable GAAP measures are included at the end of this
release. Management believes these non-GAAP financial measures are
useful in evaluating the Company’s operating performance, and may
be helpful to securities analysts, institutional investors and
other interested parties in understanding the Company’s operating
performance and prospects.
Investors are cautioned against placing undue reliance on
non-GAAP financial measures and are urged to review and consider
carefully the adjustments made by management to the most directly
comparable GAAP financial measures, such as net income or net
income per common share. Non-GAAP financial measures may have
limited value as analytical tools because they may exclude certain
expenses that some investors consider important in evaluating our
operating performance or ongoing business performance. Further,
non-GAAP financial measures may have limited value for purposes of
drawing comparisons between companies because different companies
may calculate similarly titled non-GAAP financial measures in
different ways because non-GAAP measures are not based on any
comprehensive set of accounting rules or principles.
About KinderCare Learning Companies™
A leading private provider of early childhood and school-age
education and care, KinderCare builds confidence for life in
children and families from all backgrounds. KinderCare supports
hardworking families in 40 states and the District of Columbia with
differentiated flexible child care solutions:
- In neighborhoods, with KinderCare® Learning Centers that offer
early learning programs for children six weeks to 12 years
old;
- Crème School®, which offers a premium early education
experience using a variety of enrichment classrooms; and
- In local schools, with Champions® before and after-school
programs.
KinderCare partners with employers nationwide to address the
child care needs of today’s dynamic workforce. We provide
customized family care benefits for organizations, including care
for young children on or near the site where their parents work,
tuition benefits, and backup care where KinderCare programs are
located. Headquartered in Lake Oswego, Oregon, KinderCare operates
more than 2,500 early learning centers and sites.
KinderCare Learning Companies,
Inc.
Condensed Consolidated Balance
Sheets (Unaudited)
(In thousands, except share
data)
September 28, 2024
December 30, 2023
Assets
Current assets:
Cash and cash equivalents
$
137,240
$
156,147
Accounts receivable, net
100,923
88,086
Prepaid expenses and other current
assets
64,656
39,194
Total current assets
302,819
283,427
Property and equipment, net
413,310
395,745
Goodwill
1,119,259
1,110,591
Intangible assets, net
432,149
439,001
Operating lease right-of-use assets
1,372,242
1,351,863
Other assets
82,718
72,635
Total assets
$
3,722,497
$
3,653,262
Liabilities and Shareholder's
Equity
Current liabilities:
Accounts payable and accrued
liabilities
$
226,680
$
154,463
Current portion of long-term debt
15,827
13,250
Operating lease liabilities—current
144,731
133,225
Deferred revenue
28,181
25,807
Other current liabilities
89,114
99,802
Total current liabilities
504,533
426,547
Long-term debt, net
1,496,423
1,236,974
Operating lease liabilities—long-term
1,315,098
1,301,656
Deferred income taxes, net
57,715
60,733
Other long-term liabilities
113,153
120,472
Total liabilities
3,486,922
3,146,382
Total shareholder's equity
235,575
506,880
Total liabilities and shareholder's
equity
$
3,722,497
$
3,653,262
KinderCare Learning Companies,
Inc.
Condensed Consolidated
Statements of Operations (Unaudited)
(In thousands, except per
share data)
Three Months Ended
September 28, 2024
September 30, 2023
Revenue
$
671,476
$
624,468
Costs and expenses:
Cost of services (excluding depreciation
and impairment)
521,093
77.6
%
468,422
75.0
%
Depreciation and amortization
29,641
4.4
%
27,069
4.3
%
Selling, general, and administrative
expenses
65,110
9.7
%
68,477
11.0
%
Impairment losses
1,257
0.2
%
1,776
0.3
%
Total costs and expenses
617,101
91.9
%
565,744
90.6
%
Income from operations
54,375
8.1
%
58,724
9.4
%
Interest expense
39,459
5.9
%
38,451
6.2
%
Interest income
(1,260
)
(0.2
%)
(1,581
)
(0.3
%)
Other (income) expense, net
(1,937
)
(0.3
%)
716
0.1
%
Income before income taxes
18,113
2.7
%
21,138
3.4
%
Income tax expense
4,154
0.6
%
5,102
0.8
%
Net income
$
13,959
2.1
%
$
16,036
2.6
%
Net income per common share: (1)
Basic
$
0.15
$
0.18
Diluted
$
0.15
$
0.18
Weighted average number of common shares
outstanding: (1)
Basic
90,366
90,366
Diluted
90,366
90,366
(1)
On October 8, 2024, the Company
effected a common stock conversion, in which Class A and Class B
common stock were converted to common stock at a ratio of 8.375 to
one. All current and prior period outstanding shares and per share
amounts have been adjusted to retrospectively reflect the
conversion.
KinderCare Learning Companies,
Inc.
Condensed Consolidated
Statements of Operations (Unaudited)
(In thousands, except per
share data)
Nine Months Ended
September 28, 2024
September 30, 2023
Revenue
$
2,016,079
$
1,892,186
Costs and expenses:
Cost of services (excluding depreciation
and impairment)
1,518,818
75.3
%
1,357,299
71.7
%
Depreciation and amortization
87,393
4.3
%
80,582
4.3
%
Selling, general, and administrative
expenses
234,148
11.6
%
220,597
11.7
%
Impairment losses
7,140
0.4
%
7,081
0.4
%
Total costs and expenses
1,847,499
91.6
%
1,665,559
88.0
%
Income from operations
168,580
8.4
%
226,627
12.0
%
Interest expense
119,806
5.9
%
114,365
6.0
%
Interest income
(5,120
)
(0.3
%)
(4,119
)
(0.2
%)
Other income, net
(5,721
)
(0.3
%)
(1,725
)
(0.1
%)
Income before income taxes
59,615
3.0
%
118,106
6.2
%
Income tax expense
18,872
0.9
%
30,375
1.6
%
Net income
$
40,743
2.0
%
$
87,731
4.6
%
Net income per common share: (1)
Basic
$
0.45
$
0.97
Diluted
$
0.45
$
0.97
Weighted average number of common shares
outstanding: (1)
Basic
90,366
90,366
Diluted
90,366
90,396
(1)
On October 8, 2024, the Company
effected a common stock conversion, in which Class A and Class B
common stock were converted to common stock at a ratio of 8.375 to
one. All current and prior period outstanding shares and per share
amounts have been adjusted to retrospectively reflect the
conversion.
KinderCare Learning Companies,
Inc.
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
September 28, 2024
September 30, 2023
Operating activities:
Net income
$
40,743
$
87,731
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization
87,393
80,582
Impairment losses
7,140
7,081
Change in deferred taxes
(761
)
(2,690
)
Loss on extinguishment of long-term debt,
net
895
3,957
Loss on extinguishment of indebtedness to
related party
—
472
Amortization of debt issuance costs
4,956
5,589
Equity-based compensation
22,316
13,873
Realized and unrealized gains from
investments held in deferred compensation asset trusts
(3,285
)
(1,001
)
Gain on disposal of property and
equipment
(1,505
)
(642
)
Changes in assets and liabilities, net of
effects of acquisitions
(1,156
)
112,812
Cash provided by operating activities
156,736
307,764
Investing activities:
Purchases of property and equipment
(94,614
)
(89,774
)
Payments for acquisitions, net of cash
acquired
(10,497
)
(3,638
)
Proceeds from the disposal of property and
equipment
1,537
834
Investments in deferred compensation asset
trusts
(6,767
)
(5,402
)
Proceeds from deferred compensation asset
trust redemptions
1,639
1,438
Cash used in investing activities
(108,702
)
(96,542
)
Financing activities:
Distribution to KC Parent
(320,000
)
—
Proceeds from issuance of long-term
debt
264,338
1,258,750
Repayment of long-term debt
—
(1,310,881
)
Repayment of indebtedness to related
party
—
(56,328
)
Principal payments of long-term debt
(7,933
)
(2,943
)
Payments of debt issuance costs
(230
)
(7,320
)
Repayments of promissory notes
(339
)
(777
)
Payments of financing lease
obligations
(1,223
)
(1,370
)
Payments of deferred offering costs
(1,725
)
—
Payments of contingent consideration for
acquisitions
—
(6,917
)
Cash used in financing activities
(67,112
)
(127,786
)
Net change in cash, cash equivalents, and
restricted cash
(19,078
)
83,436
Cash, cash equivalents, and restricted
cash at beginning of period
156,412
105,469
Cash, cash equivalents, and restricted
cash at end of period
$
137,334
$
188,905
KinderCare Learning Companies, Inc.
Condensed Consolidated Non-GAAP Measures (Unaudited) (In
thousands, except per share data)
The following table shows EBIT, EBITDA, and adjusted EBITDA for
the periods presented, and the reconciliation to its most
comparable GAAP measure, net income, for the periods presented:
Three Months Ended
Nine Months Ended
September 28,
September 30,
September 28,
September 30,
2024
2023
2024
2023
Net income
$
13,959
$
16,036
$
40,743
$
87,731
Add back:
Interest expense
39,459
38,451
119,806
114,365
Interest income
(1,260
)
(1,581
)
(5,120
)
(4,119
)
Income tax expense
4,154
5,102
18,872
30,375
EBIT
$
56,312
$
58,008
$
174,301
$
228,352
Add back:
Depreciation and amortization
29,641
27,069
87,393
80,582
EBITDA
$
85,953
$
85,077
$
261,694
$
308,934
Add back:
Impairment losses (1)
1,257
1,776
7,140
7,081
Equity-based compensation (2)
(1,402
)
56
(94
)
835
Management and advisory fee expenses
(3)
1,216
1,216
3,648
3,648
Acquisition related costs (4)
—
84
16
1,179
Non-recurring distribution and bonus
expense (5)
—
—
19,287
—
COVID-19 Related Stimulus, net (6)
(14,908
)
(32,160
)
(65,683
)
(126,857
)
Other costs (7)
(760
)
970
6,139
8,659
Adjusted EBITDA
$
71,356
$
57,019
$
232,147
$
203,479
The following table shows adjusted net income (loss) and
adjusted net income (loss) per common share for the periods
presented and the reconciliation to the most comparable GAAP
measure, net income and net income per common share, respectively,
for the periods presented:
Three Months Ended
Nine Months Ended
September 28,
September 30,
September 28,
September 30,
2024
2023
2024
2023
Net income
$
13,959
$
16,036
$
40,743
$
87,731
Income tax expense
4,154
5,102
18,872
30,375
Net income before income tax:
$
18,113
$
21,138
$
59,615
$
118,106
Add back:
Amortization of intangible assets
2,284
2,296
6,852
7,131
Impairment losses (1)
1,257
1,776
7,140
7,081
Equity-based compensation (2)
(1,402
)
56
(94
)
835
Management and advisory fee expenses
(3)
1,216
1,216
3,648
3,648
Acquisition related costs (4)
—
84
16
1,179
Non-recurring distribution and bonus
expense (5)
—
—
19,287
—
COVID-19 Related Stimulus, net (6)
(14,908
)
(32,160
)
(65,683
)
(126,857
)
Other costs (7)
(760
)
970
6,139
8,659
Adjusted income (loss) before income
tax
5,800
(4,624
)
36,920
19,782
Adjusted income tax expense (benefit)
(8)
1,497
(1,193
)
9,529
5,106
Adjusted net income (loss)
$
4,303
$
(3,431
)
$
27,391
$
14,676
Net income per common share: (9)
Basic
$
0.15
$
0.18
$
0.45
$
0.97
Diluted
$
0.15
$
0.18
$
0.45
$
0.97
Adjusted net income (loss) per common
share: (9)
Basic
$
0.05
$
(0.04
)
$
0.30
$
0.16
Diluted
$
0.05
$
(0.04
)
$
0.30
$
0.16
Weighted average number of common shares
outstanding: (9)
Basic
90,366
90,366
90,366
90,366
Diluted
90,366
90,366
90,366
90,396
Explanation of add backs:
(1)
Represents impairment charges for
long-lived assets as a result of center closures and reduced
operating performance at certain centers due to the impact of
changing demographics in certain locations in which we operate and
current macroeconomic conditions on our overall operations.
(2)
Represents non-cash equity-based
compensation expense in accordance with Accounting Standards
Codification 718, Compensation: Stock Compensation.
(3)
Represents amounts incurred for
management and advisory fees with related parties in connection
with a management services agreement with Partners Group (USA),
Inc., a related party of the Company’s ultimate parent, which was
terminated upon completion of our IPO.
(4)
Represents costs incurred in
connection with planned and completed acquisitions, including due
diligence, transaction, integration, and severance related costs.
During the periods presented, these costs were incurred related to
the acquisition of Crème School.
(5)
During March 2024, we recognized
a $14.3 million one-time expense related to an advance distribution
to Class B profit interest units ("PIUs") recipients, which are
defined as certain employees, officers, managers, directors, and
other providers of services to KC Parent, LP and its subsidiaries
(collectively, "PIU Recipients"). In connection with this
distribution, we recognized a $5.0 million one-time bonus expense
for restricted stock units ("RSUs") and stock options to certain
service providers, which are defined as employees, consultants, or
directors (collectively, “Participants"), to account for the change
in value associated with the March 2024 distribution to PIU
Recipients. We do not routinely make distributions to PIU
Recipients in advance of a liquidity event or pay bonuses to RSU or
stock option Participants outside of normal vesting and we do not
expect to do so in the future.
(6)
Includes expense reimbursements
and revenue arising from the COVID-19 pandemic, net of pass-through
expenses incurred as a result of certain grant requirements. We
recognized $16.9 million and $36.9 million during the three months
ended September 28, 2024 and September 30, 2023, and $55.9 million
and $145.2 million during the nine months ended September 28, 2024
and September 30, 2023, respectively, in funding for reimbursement
of center operating expenses in cost of services (excluding
depreciation and impairment), as well as $0.2 million and $1.4
million during the three months ended September 28, 2024 and
September 30, 2023, and $0.3 million and $3.0 million during the
nine months ended September 28, 2024 and September 30, 2023,
respectively, in revenue arising from COVID-19 Related Stimulus.
Additionally, during the nine months ended September 28, 2024, we
recognized $23.4 million of ERC offsetting cost of services
(excluding depreciation and impairment) as well as $2.6 million in
professional fees in selling, general, and administrative expenses
as a result of calculating and filing for ERC. COVID-19 Related
Stimulus is net of pass-through expenses incurred as stipulated
within certain grants of $2.3 million and $6.0 million during the
three months ended September 28, 2024 and September 30, 2023, and
$11.4 million and $21.3 million during the nine months ended
September 28, 2024 and September 30, 2023, respectively.
(7)
Other costs include certain
professional fees incurred for both contemplated and completed debt
and equity transactions, as well as costs expensed in connection
with prior contemplated offerings. For the three months ended
September 28, 2024, other costs include expenses incurred, offset
by a refund for costs expensed in a prior period resulting in a net
credit to expense, for professional fees incurred as a result of
our IPO. For the three months ended September 30, 2023, other costs
include expenses incurred related to a contemplated equity
transaction. For the nine months ended September 28, 2024, other
costs includes $2.9 million in transaction costs associated with
our incremental first lien term loan and repricing on our $1,750.0
million senior secured credit facilities and $0.7 million in costs
related to our IPO. For the nine months ended September 30, 2023,
other costs includes $6.3 million in transaction costs associated
with our June 2023 refinancing. These costs represent items
management believes are not indicative of core operating
performance.
(8)
Includes the tax effect of the
non-GAAP adjustments, calculated using the appropriate federal and
state statutory tax rate for each adjustment. The non-GAAP tax rate
was 25.8% for both the three and nine months ended September 28,
2024 and September 30, 2023. Our statutory rate is re-evaluated at
least annually.
(9)
The outstanding shares and per
share amounts have been retrospectively adjusted to reflect the
common stock conversion, in which the Company converted Class A and
Class B common stock to common stock at a ratio of 8.375 to one,
which became effective immediately following the effectiveness of
the Company's registration statement on Form S-1, as amended (File
No. 333-281971) for its IPO.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241120924541/en/
Investors Sloan Bohlen, Solebury Strategic Communications
investors@kindercare.com
Media Stephanie Knight, Solebury Strategic Communications
media@kindercare.com
Kindercare Learning Comp... (NYSE:KLC)
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Kindercare Learning Comp... (NYSE:KLC)
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