KinderCare Learning Companies Inc

ORGANIZATIONAND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization—KinderCare Learning Companies, Inc. (the "Company") offers early childhood education and care programs to children ranging from six weeks through 12 years of age. Founded in 1969, the services provided include infant, toddler, preschool, kindergarten, and before- and after-school programs. The Company provides childhood education and care programs within the following categories:

Community-Based and Employer-Sponsored Early Childhood Education and Care—The Company provides early childhood education and care services, as well as back-up care, primarily marketed under the names KinderCare Learning Centers and Crème School (formerly Crème de la Crème). Additionally, the Company partners with employer sponsors under a variety of arrangements such as discounted rent, enrollment guarantees, or an arrangement whereby the center is managed by the Company in return for a management fee. As of September 28, 2024, the Company provided community-based and employer-sponsored early childhood education and care services through 1,573 centers with a licensed capacity of 210,972 children in 39 states and the District of Columbia.

Before- and After-School Educational Services—The Company provides before- and after-school educational services for preschool and school-age children under the name Champions. As of September 28, 2024, Champions offered educational services through 1,018 sites in 28 states and the District of Columbia. These sites primarily operate at elementary school facilities.

Initial Public Offering—On October 8, 2024, the Company’s registration statement on Form S-1, as amended (File No. 333-281971) ("Form S-1") related to its initial public offering (“IPO”), was declared effective by the Securities and Exchange Commission (“SEC”). In connection with the 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 the Company’s registration statement on Form S-1 for its IPO (the “Common Stock Conversion”). As a result,756,816,836 shares of Class A common stock outstanding were converted to 90,366,089 shares of common stock. All current and prior period shares outstanding, per share amounts, and equity-based compensation awards disclosures, as applicable, have been adjusted to retrospectively reflect the Common Stock Conversion in the unaudited condensed consolidated interim financial statements and notes thereto.

Refer to Note 13, Shareholder's Equity and Equity-Based Compensation, Note 14, Net Income per Common Share, and Note 18, Subsequent Events, for further information on events and transactions that occurred in connection with the IPO.

Deferred Offering Costs—Offering costs, primarily consisting of accounting, legal, printing and filing services, and other third-party fees that are directly related to an IPO that is probable of successful completion, are deferred until such financing is consummated. After consummation of an IPO, these costs are recorded as a reduction of the proceeds received as a result of the IPO. Other non-recurring incremental organizational costs related to preparing for an IPO are expensed as incurred. As of September 28, 2024, the Company recorded $8.7 million in deferred offering costs within prepaid expenses and other current assets on the consolidated balance sheets, and as of December 30, 2023, the Company did not record any deferred offering costs. Refer to Note 5, Prepaid Expenses and Other Current Assets.

Basis of Presentation—The unaudited condensed consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with GAAP, have been condensed or omitted pursuant to those rules and regulations.

The unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to fairly state the Company’s financial position, results of operations, and cash flows for the periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 28, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 28, 2024 or for any other future annual or interim period.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated annual financial statements and notes thereto for the fiscal year ended December 30, 2023 filed with the SEC on October 9, 2024, pursuant to Rule 424(b) under the Securities Act ("Prospectus"). Capitalized terms not defined herein shall have the meaning set forth in the audited consolidated annual financial statements and notes thereto included in the Prospectus.

There have been no changes to the significant accounting policies described in the Company’s audited consolidated annual financial statements and notes thereto for the fiscal year ended December 30, 2023 included in the Prospectus.

Recently Issued Accounting Pronouncements—In November 2024, the FASB issued Accounting Standards Update ("ASU") 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires a public business entity to disclose specific information about certain costs and expenses in the notes to the financial statements for interim and annual reporting periods. The guidance is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, and may be applied prospectively or retrospectively. The Company is in the process of determining the impact this rule will have on the consolidated financial statements.

In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate Related Disclosures for Investors, which requires registrants to disclose climate-related information in registration statements and annual reports. The new rules would be effective for annual reporting periods beginning in fiscal year 2025. However, in April 2024, the SEC exercised its discretion to stay these rules pending the completion of judicial review of certain consolidated petitions with the United States Court of Appeals for the Eighth Circuit in connection with these rules. The Company is in the process of determining the impact this rule will have on the consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, which clarifies the scope application of profits interest and similar awards by adding illustrative guidance in Accounting Standards Codification ("ASC") 718. The ASU clarifies how to determine whether profits interest and similar awards are in the scope of ASC 718 and modifies the language in paragraph 718-10-15-3 to improve its clarity and operability. The guidance is effective for annual periods beginning after December 15, 2024, including interim periods within those annual periods, and may be applied prospectively or retrospectively. The Company is in the process of determining the impact this ASU will have on the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, which provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is effective for annual periods beginning after December 15, 2024 and may be applied prospectively or retrospectively. The Company is in the process of determining the impact this ASU will have on the disclosure requirements related to income taxes.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, which requires additional reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the ASU enhances interim disclosure requirements effectively making the current annual requirements a requirement for interim reporting. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024. Unless it is impracticable to do so, the guidance should be applied retrospectively. The Company is in the process of determining the impact this ASU will have on the disclosure requirements related to segments.

GOVERNMENT ASSISTANCE

The Company receives government assistance from various governmental entities to support the operations of its early childhood education and care centers and before- and after-school sites, which is comprised of both Income Grants and Capital Grants. Income Grants consist primarily of funds received for reimbursement of food costs, teacher compensation, and classroom supplies, and in certain cases, as incremental revenue. Refer to Note 1, Organization and Summary of Significant Accounting Policies, and Note 2, Government Assistance, within the audited consolidated annual financial statements for the fiscal year ended December 30, 2023 included in the Prospectus for further information regarding the Company's government assistance policy and disclosures related to all forms of government assistance received.

A portion of the Company's food costs are reimbursed through the federal Child and Adult Care Food Program. The program is operated by states to partially or fully offset the cost of food for children that meet certain criteria. The Company recognized food subsidies of$13.2 million and$10.9 million during the three months ended September 28, 2024 and September 30, 2023, and$38.6 million and$33.7 million during the nine months ended September 28, 2024 and September 30, 2023, respectively, offsetting cost of services (excluding depreciation and impairment) in the unaudited condensed consolidated statements of operations and comprehensive (loss) income.

COVID-19 Related Stimulus

The federal government passed multiple stimulus packages since the onset of the coronavirus disease 2019 ("COVID-19") pandemic to stabilize the child care industry, including without limitation, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act”), the Consolidated Appropriations Act, and the American Rescue Plan Act. "COVID-19 Related Stimulus" refers to grants arising from governmental acts relating to the COVID-19 pandemic and are accounted for in accordance with the Company's government assistance policy.

COVID-19 Related Stimulus is recognized as revenue or as cost reimbursements based on stipulations within each specific grant. Revenue arising from COVID-19 Related Stimulus is to replace lost revenue at centers due to closures or reduced enrollment as a result of the COVID-19 pandemic. The Company recognized$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 from COVID-19 Related Stimulus in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. Additionally, the Company 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, offsetting cost of services (excluding depreciation and impairment) in the unaudited condensed consolidated statements of operations and comprehensive (loss) income.

As of September 28, 2024 and December 30, 2023,$1.3 million and$1.0 million, respectively, were recorded in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets for amounts receivable from COVID-19 Related Stimulus. Refer to Note 5, Prepaid Expenses and Other Current Assets. The Company records a deferred grant liability for amounts received from government assistance that do not yet meet the Company’s recognition criteria. As of September 28, 2024 and December 30, 2023,$7.2 million and$18.1 million, respectively, were recorded for deferred grants, primarily related to COVID-19 Related Stimulus, in other current liabilities on the unaudited condensed consolidated balance sheets.

The Employee Retention Credit (“ERC”), established by the CARES Act and extended and expanded by several subsequent governmental acts, allows eligible businesses to claim a per employee payroll tax credit based on a percentage of qualified wages, including health care expenses, paid during calendar year 2020 through September 2021. During the fiscal year ended December 31, 2022, the Company applied for ERC for qualified wages and benefits paid throughout the fiscal years ended January 1, 2022 and January 2, 2021. Reimbursements of $62.0 million in cash tax refunds for ERC claimed, along with $2.3 million in interest income, were received during the fiscal year ended December 30, 2023. Due to the unprecedented nature of ERC legislation and the changing administrative guidance, not all of the ERC reimbursements received have met the Company's recognition criteria. During the nine months ended September 28, 2024, the Company recognized $23.4 million of ERC in cost of services (excluding depreciation and impairment), along with $0.5 million in interest income in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. No ERC was recognized during the three months ended September 28, 2024 and the three and nine months ended September 30, 2023. As of September 28, 2024 and December 30, 2023, deferred ERC liabilities of$31.4 million and$20.6 million were recorded in other current liabilities and$12.3 million and$43.7 million were recorded in other long-term liabilities, respectively, on the unaudited condensed consolidated balance sheets. Additionally, the Company recorded $3.4 million in ERC receivables in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets as of September 28, 2024 as there is reasonable assurance these reimbursements will be received. Refer to Note 5, Prepaid Expenses and Other Current Assets, and Note 15, Income Taxes. Refer to Note 20, Income Taxes, within the audited consolidated annual financial statements for the fiscal year ended December 30, 2023 included in the Prospectusfor further information regarding uncertain tax positions for ERC not yet recognized.

ACQUISITIONS

The Company's growth strategy includes expanding and diversifying service offerings through acquiring high quality early childhood education centers.

2024 Acquisitions—During the nine months ended September 28, 2024, the Company acquired 16 early childhood education centers in eight separate business acquisitions which were each accounted for as business combinations. The centers were acquired for cash consideration of$10.5 million. The Company recorded goodwill of$8.7 million, which is deductible for tax purposes, and fixed assets of$1.9 million. The operating results for the acquired centers, which were not material to the

Company’s overall financial results, are included in the unaudited condensed consolidated statements of operations and comprehensive (loss) income from the dates of acquisition.

2023 Acquisitions—During the nine months ended September 30, 2023, the Company acquired two early childhood education centers in two separate business acquisitions which were each accounted for as business combinations. The centers were acquired for cash consideration of $2.4 million. The Company recorded goodwill of $2.3 million, which is deductible for tax purposes, and fixed assets of $0.1 million. The operating results for the acquired centers, which were not material to the Company’s overall financial results, are included in theunaudited condensed consolidated statements of operations and comprehensive (loss) income from the dates of acquis ition.

REVENUE RECOGNITION

Contract Balances

The Company records deferred revenue when payments are received in advance of the Company’s performance under the contract, which is recognized as revenue as the performance obligation is satisfied. Payment from parents for tuition is typically received in advance on a weekly or monthly basis, in which case the revenue is deferred and recognized as the performance obligation is satisfied. The Company has the unconditional right to consideration as it satisfies the performance obligations, therefore no contract assets are recognized. During the three and nine months ended September 28, 2024,$0.1 million and$25.4 million, respectively, was recognized as revenue related to the deferred revenue balance recorded as of December 30, 2023. During the three and nine months ended September 30, 2023, $0.1 million and$24.8 million, respectively, was recognized as revenue related to the deferred revenue balance recorded as of December 31, 2022.

The Company applied the practical expedient of expensing costs incurred to obtain a contract if the amortization period of the asset is one year or less. Sales commissions are expensed as incurred in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive (loss) income.

Disaggregation of Revenue

The following table disaggregates total revenue between education centers and school sites (in thousands):

A portion of revenue is generated from families whose tuition is subsidized by amounts received from government agencies. Subsidy revenue was$242.6 million and$201.4 million during the three months ended September 28, 2024 and September 30, 2023, and$699.8 million and$596.0 million during the nine months ended September 28, 2024 and September 30, 2023, respectively, recognized within revenue in the unaudited condensed consolidated statements of operations and comprehensive (loss) income.

Performance Obligations

The transaction price allocated to the remaining performance obligations relates to services that are paid or invoiced in advance. The Company does not disclose the transaction price allocated to unsatisfied performance obligations for contracts with an original contractual period of one year or less, or for variable consideration allocated entirely to wholly unsatisfied promises that form part of a series of services. The Company’s remaining performance obligations not subject to the practical expedients are not material.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets included the following (in thousands):

GOODWILL

The changes in the carrying amount of goodwill are as follows (in thousands):

LEASES

Right-of-use ("ROU") assets and lease liabilities balances were as follows (in thousands):

Finance lease ROU assets are included in other assets and finance lease liabilities are included in other current liabilities and other long-term liabilities on the unaudited condensed consolidated balance sheets. Refer to Note 9, Fair Value Measurements, for information regarding impairment of ROU assets.

Lease Expense

The components of lease expense were as follows (in thousands):

Other Information

The weighted average remaining lease term and the weighted average discount rate as of September 28, 2024 and December 30, 2023 were as follows:

Maturity of Lease Liabilities

The following table summarizes the maturity of lease liabilities as of September 28, 2024 (in thousands):

As of September 28, 2024, the Company had entered into additional operating leases that have not yet commenced with total fixed payment obligations of $150.9 million. The leases are expected to commence between 2025 and 2027 and have initial lease terms of approximately 15 years.

The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The rates are established based on the Company’s first lien term loan.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities included the following (in thousands):

FAIR VALUE MEASUREMENTS

Fair value guidance defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a three-level hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach).

The levels of the fair value hierarchy are described below:

•

Level 1: Quoted prices in active markets for identical assets or liabilities.

•

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

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Level 3: Unobservable inputs with little or no market data available, which require the reporting entity to develop its own assumptions.

Investments held for the Deferred Compensation Plan—The Company records the fair value of the investments and cash and cash equivalents held for the deferred compensation plan in other assets on the unaudited condensed consolidated balance sheets. The carrying value of cash and cash equivalents held in the fund approximates fair value, and the amounts were not material as of September 28, 2024 and December 30, 2023. The investments held in the plan consist of mutual funds and money market funds with fair values that can be corroborated by prices for identical assets and therefore are classified as Level 1 investments under the fair value hierarchy. The following tables summarize the composition of the underlying investments in the Company's deferred compensation plan trust assets, excluding cash and cash equivalents (in thousands):

Derivative Financial Instruments—The Company's derivative financial instruments include interest rate derivative contracts. The fair value of derivative financial instruments is determined using observable market inputs such as quoted prices for similar instruments, forward pricing curves, and interest rates, and considers nonperformance risk of the Company and its counterparties, and as such, derivative financial instruments are classified as Level 2. The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contracts. The Company elects to record its derivative financial instruments at net fair value on the unaudited condensed consolidated balance sheets. As of September 28, 2024 and December 30, 2023, the Company's interest rate derivative contracts of$0.5 million and$1.2 million, respectively, were recorded in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets. Additionally, as of September 28, 2024, the Company's interest rate derivative contracts of$9.4 million were recorded in other long-term liabilities on the unaudited condensed consolidated balance sheets. Refer to Note 5, Prepaid Expenses and Other Current Assets, and Note 11, Risk Management and Derivatives, for additional information regarding the Company’s derivative financial instruments.

Long-Term Debt—The Company records long-term debt on the unaudited condensed consolidated balance sheets at adjusted cost, net of unamortized issuance costs. The estimated fair value of first lien term loans was$1,588.6 million as of September 28, 2024 and$1,327.5 million as of December 30, 2023 and is based on mid-point prices, or prices for similar instruments from active markets, on the balance sheet date. There wereno outstanding borrowings on the first lien revolving credit facility as of September 28, 2024 or December 30, 2023. Given the short-term nature of outstanding obligations on the first lien revolving credit facility, the carrying value approximates fair value. The first lien term loan and the first lien revolving credit facility are classified as Level 2. Refer to Note 10, Long-term Debt, for additional information regarding the Company's long-term debt.

Other Financial Instruments—The carrying value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued liabilities approximates fair value due to the short-term nature of these assets and liabilities.

There were no transfers between levels within the fair value hierarchy during any of the periods presented.

Nonrecurring Fair Value Estimates—The estimated fair value of the Company's long-lived assets are calculated using the discounted cash flow (“DCF”) method of the income approach to fair value. The DCF method for property and equipment incorporates unobservable inputs (Level 3) which include future cash flow projections and discount rate assumptions. For ROU assets, the DCF method incorporates market-based inputs (Level 3) which include the as-is market rents and discount rates.

The following table presents the amount of impairment expense of long-lived assets (in thousands):

Refer to Note 7, Leases, for additional information regarding the Company's ROU assets.

LONG-TERM DEBT

Long-term debt included the following (in thousands):

Senior Secured Credit Facilities—The Company's Credit Agreement includes $1,750.0 million senior secured credit facilities which consist of a $1,325.0 million first lien term loan and a $265.0 million incremental first lien term loan (collectively, the "First Lien Term Loan Facility")and a $160.0 million revolving credit facility (the “First Lien Revolving Credit Facility”) (collectively, the “Senior Secured Credit Facilities”).

The Company issued the incremental first lien term loan of $265.0 million in March 2024 through an amendment to the Credit Agreement. The amendment increased the required quarterly principal payments on the First Lien Term Loan Facility to $4.0 million from $3.3 million, beginning with the payment due for the quarter ended March 30, 2024. In April 2024, the Company entered into a repricing amendment to the Credit Agreement. As of the effective date of the amendment, the First Lien Term Loan Facility bears interest at a variable rate equal to the Secured Overnight Financing Rate ("SOFR") plus 4.50% per annum. Additionally, as of the effective date of the amendment, amounts drawn under the First Lien Revolving Credit Facility bear interest at SOFR plus an applicable rate between 4.00% and 4.50% per annum, and fees on the outstanding balance of letters of credit bear interest at an applicable rate between 4.00% and 4.50% per annum, based on a pricing grid of the Company’s First Lien Term Loan Facility net leverage ratio. The Credit Agreement allows for letters of credit to be drawn against the current borrowing capacity of the First Lien Revolving Credit Facility, capped at $115.0 million. The Company pays certain fees under the First Lien Revolving Credit Facility, including a fronting fee of 0.125% per annum, as well as fees on the unused portion of the First Lien Revolving Credit Facility at a rate between 0.25% and 0.50% per annum, based on a pricing grid of the Company's First Lien Term Loan Facility net leverage ratio. Prior to the amendment, the First Lien Term Loan Facility bore interest at a variable rate equal to SOFR plus 5.00% per annum. Additionally, prior to the April 2024 amendment, amounts drawn under the First Lien Revolving Credit Facility bore interest at SOFR plus an applicable rate between 4.50% and 5.00% per annum, and fees on the outstanding balance of letters of credit bore interest at an applicable rate between 4.50% and 5.00% per annum, based on a pricing grid of the Company’s First Lien Term Loan Facility net leverage ratio. All other terms under the Credit Agreement remain unchanged as a result of the amendments. Refer to Note 18, Subsequent Events, for information on debt transactions that occurred subsequent to September 28, 2024.

Principal payments on the First Lien Term Loan Facility are payable in arrears on the last business day of each calendar year quarter, with the final payment of the remaining principal balance due in June 2030 when the First Lien Term Loan Facility matures. Interest payments on the Senior Secured Credit Facilities are payable in arrears on the last business day of each calendar year quarter. The First Lien Revolving Credit Facility matures in June 2028.

All obligations under the Credit Agreement are secured by substantially all the assets of the Company and its subsidiaries. The Credit Agreement contains various financial and nonfinancial loan covenants and provisions. Commencing with the fiscal quarter ended December 30, 2023, the Company must comply with a quarterly maximum First Lien Term Loan Facility net leverage ratio financial loan covenant. The First Lien Term Loan Facility net leverage ratio is required to be tested only if, on the last day of each fiscal quarter, the amount of revolving loans outstanding under the First Lien Revolving Credit Facility, excluding all letters of credit, exceeds 35% of total revolving commitments on such date. Nonfinancial loan covenants restrict the Company’s 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 September 28, 2024, the Company was in compliance with the covenants of the Credit Agreement.

An annual calculation of excess cash flows, commencing with the fiscal year ending December 28, 2024, determines if the Company will be required to make a mandatory prepayment on the First Lien Term Loan Facility. Mandatory prepayments would reduce future required quarterly principal payments.

Other Credit Facilities—In February 2024, the Company entered into a credit facilities agreement (the "LOC Agreement") which allows for $20.0 million in letters of credit to be issued. The Company pays certain fees under the LOC Agreement, including fees on the outstanding balance of letters of credit at a rate of 5.95% per annum and fees on the unused portion of letters of credit at a rate of 0.25% per annum. Fees on the letters of credit are payable in arrears on the last business day of each March, June, September, and December. The LOC Agreement matures in December 2026. Upon entering into the LOC Agreement, the Company issued $20.0 million in letters of credit and cancelled $16.7 million of outstanding letters of credit under the First Lien Revolving Credit Facility.

The Company hadno outstanding borrowings on the First Lien Revolving Credit Facility and had an available borrowing capacity of$104.2 million after giving effect to the outstanding letters of credit under the Credit Agreement of$55.8 million as of September 28, 2024. Additionally, the Company hadno outstanding borrowings on the First Lien Revolving Credit Facility and had an available borrowing capacity of$87.5 after giving effect to the outstanding letters of credit under the Credit Agreement of$72.5 million as of December 30, 2023. The Company had $20.0 million outstanding letters of credit under the LOC Agreement as of September 28, 2024.

The Company capitalized original issue discount and debt issuance costs of$0.9 million during the nine months ended September 28, 2024, related to the March 2024 and April 2024 amendments to the Credit Agreement. The Company capitalized original issue discount and debt issuance costs of$73.6 million during the nine months ended September 30, 2023, related to the June 2023 refinancing. These costs are being amortized over the terms of the related debt instruments and amortization expense isincluded within interest expense in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. No debt issuance costs were incurred during the three months ended September 28, 2024 and September 30, 2023.

The Company recognized a$0.9 million loss on extinguishment of debt during the nine months ended September 28, 2024 related to the unamortized original issue discount and deferred financing costs that were written off in connection with certain lenders that had reduced principal holdings or did not participate in the loan syndication as a result of the April 2024 amendment to the Credit Agreement. The Company recognized a$4.4 million loss on extinguishment of debt during the nine months ended September 30, 2023 related to the unamortized deferred financing costs that were written off in connection with the term loans and senior secured notes that were extinguished. Losses from extinguishment of debt are recognized in interest expense in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. The Company did not incur any gain or loss on extinguishment of debt during the three months ended September 28, 2024 and September 30, 2023.

Future principal payments on long-term debt for the remaining fiscal year ending December 28, 2024 and for the fiscal years thereafter are as follows (in thousands):

RISK MANAGEMENT AND DERIVATIVES

The Company is exposed to market risks, including the effect of changes in interest rates, and may use derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. The Company may elect to designate certain derivatives as hedging instruments under ASC 815, Derivatives and Hedging. The Company formally documents all relationships between designated hedging instruments and hedged items, as well as its risk management and strategy for undertaking hedge transactions.

Cash Flow Hedges—For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of other comprehensive income or loss and reclassified into current earnings in the same period during which the hedged transaction affects earnings and is presented in the same line item as the earnings effect of the hedged item, primarily within interest expense in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. The Company classifies the cash flows at settlement from these designated cash flow hedges in the same category as the cash flows from the related hedged items, primarily within the cash provided by operations component of the unaudited condensed consolidated statements of cash flows.

In October 2022, the Company entered into an interest rate cap contract on approximately half of the variable rate debt under the senior secured credit facilities. The cap commenced on December 31, 2022 and provided protection in the form of variable payments from a counterparty in the event that the three-month SOFR increased above 4.85%. The notional amount of the derivative instrument was $661.2 million as of December 30, 2023 and $659.8 million immediately prior to its expiration on June 28, 2024 and decreased quarterly as principal payments were made on the First Lien Term Loan Facility. The Company paid initial costs of $5.0 million for the interest rate cap. The Company elected to exclude the change in the time value of the interest rate cap from the assessment of hedge effectiveness and amortized the initial value of the premium over the life of the contract. The premium amortization was recognized in interest expense in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. Payment and amortization of the interest rate cap premium was included within prepaid expense and other current assets as well as other assets within cash flows from operating activities on the Company’s unaudited condensed consolidated statements of cash flows. The derivative was considered highly effective through its expiration on June 28, 2024.

In January 2024, the Company entered into a pay-fixed-receive-float interest rate swap contract, with a fixed interest rate of 3.85% per annum. Additionally, in February 2024, the Company entered into two pay-fixed-receive-float interest rate swap contracts, with fixed interest rates of 3.89% per annum. The contracts were executed in order to hedge the interest rate risk on a portion of the variable debt under the Credit Agreement. The Company receives variable amounts of interest from a counterparty at the greater of three-month SOFR or 0.50% per annum and recognizes the amount reclassified into current earnings of the interest rate swaps in interest expense inthe unaudited condensed consolidated statements of operations and comprehensive (loss) income. The interest rate swap contracts commenced on June 28, 2024 and will mature on December 31, 2026, with a total notional amount of $800.0 million through December 31, 2026. As of September 28, 2024, the derivatives are considered highly effective. The Company estimates that$0.5 million, before income taxes, of deferred gains recognized within accumulated other comprehensive loss as of September 28, 2024 will be reclassified as a decrease in interest expense within the next 12 months. Actual amounts reclassified into net income during the next 12 months are dependent on changes in the three-month SOFR.

The following table presents the amounts affecting the unaudited condensed consolidated statements of operations and comprehensive (loss) income (in thousands):

Credit Risk—The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with at or above investment grade credit ratings. This does not eliminate the Company’s exposure to credit risk with these institutions; however, the Company’s risk is limited to the fair value of the instruments. The Company is not aware of any circumstance or condition that would preclude a counterparty from complying with the terms of the derivative contracts and will continuously monitor the credit worthiness of all its derivative counterparties for any significant adverse changes.

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The changes in accumulated other comprehensive (loss) income, net of tax, are comprised of unrealized gains and losses on cash flow hedging instruments, and were as follows (in thousands):

(1)

Net of tax (expense) of$(446)

(2)

Net of tax (benefit) of$(411)

(3)

Net of tax benefit of$1,725

(4)

Net of tax expense of$463

SHAREHOLDER'S EQUITY AND EQUITY-BASED COMPENSATION

KC Parent Profit Interest Units—In August 2015, the Board of Managers of KC Parent, LP ("KC Parent") approved the 2015 Equity Incentive Plan (“PIUs Plan”) which provides KC Parent authorization to award profit interest units (“PIUs”) to certain employees, officers, managers, directors, and other providers of services to KC Parent and its subsidiaries (collectively, “PIU

Recipients”) pursuant to the terms and conditions of the PIUs Plan. The PIUs consist of Class A-1 Units, Class B-1 Units, Class B-2 Units, and Class B-3 Units and entitle PIU Recipients to share in increases in the value of KC Parent from and after the date of issuance.

Pursuant to the PIUs Plan and prior to the IPO, KC Parent authorized 7.5 million Class A-1 Units,31.6 million Class B-1 Units,31.6 million Class B-2 Units, and 23.7 million Class B-3 Units for issuance to PIU Recipients. Any units that are forfeited, canceled, or reacquired by KC Parent prior to vesting are added back to the units available for issuance under the PIUs Plan.

Class A-1 Units are fully vested upon issuance. Class B-1 Units vest over afour-year period at 25% per annum, subject to the service of the PIU Recipients with the Company, except in the event of an eligible retirement in which units remain outstanding and eligible to vest without regard for remaining service requirements. Upon the consummation of a sale of the Company, the vesting of all then nonvested Class B-1 Units accelerates in full. Class B-2 and Class B-3 Units vest on the date when certain performance-based vesting conditions are met, subject to the continued service of the PIU Recipients with the Company, except in the event of an eligible retirement. The performance conditions require raising distribution proceeds from the Company or from a third-party or transfer to securities in an aggregate amount equal to two times for Class B-2 Units or three times for Class B-3 Units of the Class A contribution amount and all other capital invested by KC Parent's limited partners. This condition is viewed as a substantive liquidity event performance-based vesting condition. For performance conditions, equity-based compensation expense is only recognized if the performance conditions become probable to be satisfied. The Company hasnot recognized any performance-based vesting compensation expense for Class B-2 and Class B-3 Units as of September 28, 2024 and September 30, 2023 as the performance-based vesting conditions were not probable to be met. In March 2024, the PIUs Plan was modified. Refer to this note under the subsection titled "Equity-based Compensation Expense" for additional detail on how this modification was accounted for under ASC 718. Additionally, refer to Note 18, Subsequent Events, for further information regarding modifications to equity-based compensation plans that occurred subsequent to September 28, 2024.

A summary of the PIU activity under the PIUs Plan is presented in the table below (units in millions):

Weighted average grant date fair value per unit is as follows:

The weighted average grant date fair value for the Class B Units presented above are prior to the March 2024 modification to the PIUs Plan. The modification did not impact the weighted average fair value of the vested Class B-1 Units and the impact to the weighted average fair value of the non-vested Class B-1 units was not material. As of the March 2024 modification, the weighted average fair value per unit of the nonvested Class B-2 and Class B-3 Units was $1.89 and $1.68, respectively. There wereno units granted during both the three and nine months ended September 28, 2024 and September 30, 2023. The total grant date fair value of the units vested, which was measured using the Monte Carlo option pricing model, was less than$0.1 million and$0.6 million during the nine months ended September 28, 2024 and September 30, 2023, respectively. There wereno units vested during the three months ended September 28, 2024 and September 30, 2023. There were less than$0.1 million repurchase liabilities paid during the nine months ended September 28, 2024. There wereno repurchase liabilities paid during both the three months ended September 28, 2024 and September 30, 2023 and the nine months ended September 30, 2023.

2022 Incentive Award Plan—In February 2022, the Company's Board of Directors (the "Board") approved the 2022 Plan which provides the Company authorization to grant stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), dividend equivalents, or other stock or cash-based awards to certain service providers which are defined as employees, consultants, or directors (collectively, “Participants") pursuant to the terms and conditions of the 2022 Plan. Stock options granted under the 2022 Plan may be either incentive stock options or nonqualified stock options. Prior to the IPO, the 2022 Plan provides that the aggregate number of shares available for issuance pursuant to the awards shall be equal to the sum of (i)107.8 million shares and (ii) an annual increase on the first day of each calendar year beginning on January 1, 2023 and ending January 1, 2032 equal to the lesser of (A)4% of the number of shares outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares as determined by the Board. Refer to Note 18, Subsequent Events, for further information regarding the modification to the 2022 Plan that occurred subsequent to September 28, 2024.

Stock Options—The Company's stock options have time-based vesting schedules for which the awards generally vest 25% upon the first anniversary of the grant date and the remaining in equal quarterly installments over the following three years. The awards granted in May 2022 vest ratably over three years. Stock options have fixed 10-year terms and will expire and become unexercisable after the earliest of: (i) the tenth anniversary of the grant date, (ii) the ninetieth day following the Participant's termination of service for any reason other than due to death, disability, qualifying retirement, or for cause, (iii) immediately upon the termination of service of the Participant for cause, or (iv) the expiration of twelve months from the Participant's termination of service due to death or disability. In the event of qualifying retirement, the stock options will remain outstanding and eligible to vest in accordance with the terms of the 2022 Plan.

In February 2023, the 2022 Plan was amended to provide for cash settlement of all stock options granted under the plan. As a result, stock options were remeasured at fair value and reclassified as liabilities at the modification date and are subject to remeasurement at fair value each reporting period following the modification date. Equity-based compensation expense is recognized to reflect changes in the fair value of the liabilities to the extent that the fair value does not decrease below the grant date fair value of the awards. Refer to this note under the subsection titled "Equity-based Compensation Expense" for additional detail on how this modification was accounted for under ASC 718.

A summary of the stock option activity under the 2022 Plan, the weighted average exercise price per option, and the weighted average grant date fair value per option is presented in the table below:

(1)

The equity-based compensation awards disclosures have been retrospectively adjusted to reflect the Common Stock Conversion. Refer to Note 1, Organization and Summary of Significant Accounting Policies, and Note 18, Subsequent Events, for further information.

There wereno stock options granted during both the three and nine months ended September 28, 2024 and September 30, 2023. As of September 28, 2024, the fair value of stock options that vested during the three and nine months ended September 28, 2024 was$0.6 million and$4.2 million, respectively. As of September 30, 2023, the fair value of stock options that vested during the three and nine months ended September 30, 2023 was$0.8 million and$8.9 million, respectively. During the nine months ended September 28, 2024, cash paid to settle vested stock options for terminated Participants was less than$0.1 million. There wereno cash settlements for vested stock options paid during both the three months ended September 28, 2024 and September 30, 2023 and the nine months ended September 30, 2023.

As of September 28, 2024 and December 30, 2023, all stock options were classified as liabilities with$12.4 million and$8.1 million, respectively, recorded within other current liabilities on the unaudited condensed consolidated balance sheets. As of September 28, 2024 and December 30, 2023,$0.1 million and$0.3 million in stock option liabilities, respectively, were recorded within other long-term liabilities on the unaudited condensed consolidated balance sheets.

Restricted Stock Units—The Company's RSUs awarded to management have time-based vesting schedules for which the awards generally vest 25%upon the first anniversary of the grant date and the remaining in equal quarterly installments over the following three years. The awards granted in May 2022 vest ratably over three years. RSUs awarded to independent board members have a time-based, one-year vesting schedule.

The RSUs are subject to certain requirements including the Participant's continued service through the vesting date, as applicable. In the event of a Participant's termination of service, the Participant immediately forfeits any and all RSUs granted that have not vested or do not vest on the date termination of service occurs and rights in any such non-vested RSUs shall lapse and expire. Upon the occurrence of termination of service due to death or disability, the RSUs shall become vested in full. In the event of qualifying retirement, the RSUs will remain outstanding and eligible to vest in accordance with the terms of the 2022 Plan.

In February 2023, the 2022 Plan was amended to provide for cash settlement of all RSUs granted under the plan, whereas prior to the amendment, half of the value of the RSUs were to be settled in cash and the other half were to be settled in shares. As a result, previously equity-classified RSUs were remeasured at fair value and reclassified as liabilities at the modification date and are subject to remeasurement at fair value each reporting period following the modification date. Equity-based compensation expense is recognized to reflect changes in the fair value of the liabilities to the extent that the fair value does not decrease below the grant date fair value of the awards. Refer to this note under the subsection titled "Equity-based Compensation Expense" for additional detail on how this modification was accounted for under ASC 718. The fair value of RSUs is determined based on the fair value of the Company's common stock.

A summary of the RSU activity under the 2022 Plan and the weighted average grant date fair value per unit is presented in the table below (RSUs in millions):

(1)

The equity-based compensation awards disclosures have been retrospectively adjusted to reflect the Common Stock Conversion. Refer to Note 1, Organization and Summary of Significant Accounting Policies, and Note 18, Subsequent Events, for further information.

There wereno RSUs granted during both the three and nine months ended September 28, 2024 and September 30, 2023. The total fair value of vested RSUs paid to Participants was$0.6 million and$0.9 million during the three months ended September 28, 2024 and September 30, 2023, and$4.7 million and$7.9 million during the nine months ended September 28, 2024 and September 30, 2023, respectively.

As of September 28, 2024 and December 30, 2023, cash-settled RSU liabilities of$1.9 million and$2.2 million were recorded within other current liabilities, and$0.1 million and$0.4 million, respectively, were recorded within other long-term liabilities on the unaudited condensed consolidated balance sheets.

Valuation Assumptions—The Company estimates the grant date fair value of PIUs using a Monte Carlo Simulation model and estimates the grant date fair value of stock options using a Black-Scholes model. The Monte Carlo Simulation model and Black-Scholes model require the use of highly complex and subjective assumptions. Changes in the assumptions can materially affect the fair value and ultimately how much equity-based compensation expense is recognized.

The assumptions that impacted the Monte Carlo Simulation model related to the March 2024 modification to the PIUs Plan are as follows:

The assumptions that impacted the Black-Scholes model for stock options are as follows:

(1)

The equity-based compensation awards disclosures have been retrospectively adjusted to reflect the Common Stock Conversion. Refer to Note 1, Organization and Summary of Significant Accounting Policies, and Note 18, Subsequent Events, for further information.

Fair value of aggregate equity

Prior to the Company’s IPO, there was no public market for the equity of the Company, and therefore, the Company utilized a third-party valuation firm to determine estimates of fair value using generally accepted valuation methodologies, specifically income-based and market-based methods. The income-based method is the discounted cash flow method and the market methods include the guideline public company method and benchmarking against contemplated market transactions. Weightings are adjusted over time to reflect the merits and shortcomings of each method.

Risk-free interest rate

The risk-free interest rate is based on the United States constant maturity rates with remaining terms similar to the expected term of the PIUs and stock options.

Expected dividend yield

The Company does not expect to declare a dividend to shareholders in the foreseeable future.

Expected term

For PIUs, the Company calculates the expected term based on the expected time to a liquidity event. For stock options, the Company determines the expected term using the simplified method, which is based on the average period the stock options are expected to remain outstanding, generally calculated as the midpoint of the stock options’ vesting term and contractual expiration period. The simplified method is used as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting service termination behavior.

Expected volatility

Prior to the Company’s IPO, there was no specific historical or implied volatility information available. Accordingly, the Company estimated the expected volatility on the historical stock volatility of a group of similar companies that are publicly traded over a period equivalent to the respective expected term of the PIUs and stock options.

Equity-based Compensation Expense—Total equity-based compensation expense for all equity-based compensation awards was$3.2 million and$3.4 million during the three months ended September 28, 2024 and September 30, 2023, and$22.3 million and$13.9 million during the nine months ended September 28, 2024 and September 30, 2023, respectively, and was recognized in selling, general, and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. Equity-based compensation expense recognized during the nine months ended September 28, 2024 includes $14.3 million in expense related to the March 2024 modification to the PIUs Plan. The income tax benefit related to equity-based compensation expense was$0.8 million and$0.9 million during the three months ended September 28, 2024 and September 30, 2023, and$2.0 million and$3.7 million during the nine months ended September 28, 2024 and September 30, 2023, respectively.

In February 2023, the 2022 Plan was amended to provide for cash settlement of all stock options and RSUs granted under the plan. This modification impacted 100 Participants with stock options and RSUs. Under ASC 718, a modification in the terms or conditions of an award, unless the change is non-substantive, represents an exchange of the original award for a new award. In the case of modifications that result in reclassification of the awards from equity to liabilities, the liability is remeasured at fair value every reporting period, with changes recognized as equity-based compensation expense to the extent that the fair value of the awards does not decrease below grant date fair value. Any change in the liability below the grant date fair value of the awardsis recorded within additional paid-in capital. On the modification date, all stock options and RSUs granted under the 2022 Plan were remeasured at fair value resulting in a $6.8 million reclassification from additional paid-in capital to other current and other long-term liabilities on the unaudited condensed consolidated balance sheets. Furthermore, at the time of modification, the Company recorded additional equity-based compensation expense of approximately $0.6 million in the unaudited condensed consolidated statements of operations and comprehensive (loss) income.

In March 2024, the terms of the PIUs Plan were amended to provide for a March 2024 non-forfeitable distribution to 30 Class B PIU Recipients with PIUs outstanding at the time of modification, which will offset any future payments received by the PIU Recipients. Refer to Note 17, Related Party Transactions, for further information regarding the March 2024 distribution. This resulted in a Type I Modification (probable-to-probable) of the Class B-1 Units as the majority of the Class B-1 Units are vested with the remainder probable to vest both immediately before and after modification. The Class B-1 Units were measured at fair value on the modification date immediately before and after the modification. The cash distribution exceeded the reduction in fair value when comparing the value immediately before and after the modification by $4.7 million. As the distribution is non-forfeitable and does not require any additional services to be provided by the PIU Recipients, the Company recognized the $4.7 million as equity-based compensation expense within selling, general, and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive (loss) income during the nine months ended September 28, 2024. The March 2024 modification also resulted in a Type IV Modification (improbable-to-improbable) of the Class B-2 and Class B-3 Units as the distribution to Class B-2 and Class B-3 PIU Recipients did not meet the liquidity event performance-based vesting conditions and therefore the units were not probable to vest both immediately before and after modification. No performance-based vesting compensation expense has been or will be recognized related to the Class B-2 and Class B-3 Units until the performance-based vesting conditions are met, at which time, in accordance with the guidance for Type IV modifications under ASC 718, expense will be recognized based on the post-modification fair value. However, the distribution to Class B-2 and Class B-3 PIU Recipients is non-forfeitable even if a liquidity event does not occur and thus the distribution represents compensation in excess of the rights and privileges provided to Class B-2 and Class B-3 PIU Recipients under the PIUs Plan. During the nine months ended September 28, 2024, the Company recognized $9.6 million as equity-based compensation expense within selling, general, and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive (loss) income for the distribution to Class B-2 and Class B-3 PIU Recipients. No equity-based compensation expense related to the March 2024 modification was recognized during the three months ended September 28, 2024.

As of September 28, 2024, the total unrecognized equity-based compensation expense for Class B-1 Units, stock options, and RSUs, net of estimated forfeitures, was$9.4 million, which will be recognized over the remaining weighted average period of 1.1 years. Total unrecognized equity-based compensation expense for Class B-2 and Class B-3 Units as of September 28, 2024 was$96.6 million, which will be recognized once certain respective performance hurdles are achieved.

Refer to Note 18, Subsequent Events, for further information regarding modifications to equity-based compensation plans that occurred subsequent to September 28, 2024.

NET INCOME PER COMMON SHARE

The reconciliations of basic and diluted net income per common share for the three and nine months ended September 28, 2024 and September 30, 2023 are set forth in the table below (in thousands, except per share data):

(1)

The outstanding shares and per share amounts have been retrospectively adjusted to reflect the Common Stock Conversion. Refer to Note 1, Organization and Summary of Significant Accounting Policies, and Note 18, Subsequent Events, for further information.

Vested stock options under the 2022 Plan are contractually participating securities because option holders have a non-forfeitable right to receive dividends when the Company exceeds a stated distributable amount. The stated distributable amount was not met during both the three and nine months ended September 28, 2024 and September 30, 2023, and therefore, the stock options were not considered as participating in undistributed earnings in the computation of basic and diluted net income per common share for the periods.

Prior to the February 2023 amendment to the 2022 Plan, there were 1.6 million shares of common stock from outstanding stock options that were excluded from the calculation of diluted net income per common share during the nine months ended September 30, 2023. Due to the reclassification of all equity-classified stock options and RSUs to liability-classified as a result of the February 2023 amendment to the 2022 Plan, the Company no longer has share-settled stock options or RSUs, and therefore, there wereno anti-dilutive shares of common stock from outstanding stock options to exclude from the calculation of diluted net income percommon share subsequent to the amendment. In October 2024, the 2022 Plan was further amended to provide for share-settlement of all unexercised stock options and unvested RSUs, and as a result, the liability-classified awards were reclassified as equity in accordance with ASC 718. Refer to Note 18, Subsequent Events, for further information.

INCOME TAXES

The Company’s effective tax rates were 22.9% and 24.1% for the three months ended September 28, 2024 and September 30, 2023, and 31.7% and 25.7% for the nine months ended September 28, 2024 and September 30, 2023, respectively. Compared to the statutory rate, the difference in the effective tax rate for both the three months ended September 28, 2024 and September 30, 2023 was primarily due to state income taxes, partially offset by federal tax credits. Compared to the statutory rate, the difference in the effective tax rate for the nine months ended September 28, 2024 was primarily due to the partial release of the receivable related to uncertain tax positions as a result of the portion of ERC recognized, tax expense from equity-based compensation, and state income taxes. Compared to the statutory rate, the difference in the effective tax rate for the nine months ended September 30, 2023 was primarily driven by state income taxes.

Due to the unprecedented nature of ERC legislation and the changing administrative guidance, the Company recorded a $17.1 million receivable related to uncertain tax positions in December 2022 when applying for the ERC. As of December 30, 2023, the Company's receivable related to uncertain tax positions was $17.1 million within other assets, and as of September 28, 2024, the Company reduced the receivable to $7.9 million and $3.1 million within prepaid expenses and other current assets and other assets, respectively, on the unaudited condensed consolidated balance sheets in connection with the portion of ERC recognized during the nine months ended September 28, 2024.

The Company considers all available positive and negative evidence when assessing the carrying amount of its deferred tax assets. Evidence includes the anticipated impact on future taxable income arising from the reversal of temporary differences, actual operating results for the trailing twelve quarters, the ongoing assessment of financial performance, and available tax planning strategies, if any, that management considers prudent and feasible. No valuation allowance was required as of September 28, 2024 and December 30, 2023. The Company will continue to reassess the carrying amount of its deferred tax assets.

The Company is no longer subject to examination by tax authorities for years before 2012.

COMMITMENTS AND CONTINGENCIES

Litigation—The Company is subject to claims and litigation arising in the ordinary course of business. The Company believes the recorded reserves in the unaudited condensed consolidated interim financial statements are adequate in light of the probable and estimable liabilities. The Company believes that none of the claims or litigation of which it is aware will materially affect the unaudited condensed consolidated interim financial statements, although assurance cannot be given with respect to the ultimate outcome of any such claims or actions.

RELATED PARTY TRANSACTIONS

In March 2024, the Company made a $320.0 million distribution to KC Parent, which was financed by proceeds from the incremental first lien term loan and cash on-hand and was recorded within additional paid-in capital on the unaudited condensed consolidated balance sheets.

Management Services Agreement—In August 2015, the Company entered into a management services agreement with Partners Group (USA), Inc. (“Partners Group”), a related party of the Company’s ultimate parent, pursuant to which Partners Group agreed to provide certain management and advisory services to the Company on an ongoing basis for an annual management fee of $4.9 million payable in equal quarterly installments. Management services expense is included in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive (loss) income. In connection with the IPO, the management services agreement with Partners Group was terminated in accordance with its terms. Refer to Note 18, Subsequent Events, for further information.

KC Parent, LP Agreement—In March 2024, KC Parent converted to a Delaware limited partnership company and replaced the Amended and Restated KC Parent, LLC Agreement with the KC Parent, LP Agreement. The KC Parent, LP Agreement modified the PIUs Plan to allow for the March 2024 distribution. In March 2024, KC Parent paid a $276.9 million distribution to Class A Unit holders and a $42.6 million distribution to PIU Recipients with units outstanding as of the date of modification pursuant to the KC Parent, LP Agreement and PIUs Plan. Refer to Note 13, Shareholder’s Equity and Equity-Based Compensation. In connection with the IPO, the converted 90,366,089 shares of common stock held by KC Parent were distributed to KC Parent's limited partners. Refer to Note 18, Subsequent Events, for further information.

Lease Agreements—The Company is the lessee in several lease agreements in which a limited partner of KC Parent has ownership interest in the lessor entities. The leases are managed by related parties Pat & Sons Consolidated, LLC, Rainbow Rascals Management Company, LLC, EIG14T Fund III, LLC, EIG14T Fund II, LLC, or 814 Berkley LLC and range in terms fromone to 12 years. Rent expense is included in cost of services (excluding depreciation and impairment) and selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive (loss) income.

As of September 28, 2024 and December 30, 2023, there wereno amounts due to unconsolidated related parties.

The table below details the Company’s expenses recognized from unconsolidated related parties (in thousands):

The table below represents future minimum fixed payments under non-cancelable operating leases with related parties, not including unexercised renewal options, real estate taxes, insurance, utilities, and maintenance costs, (in thousands):

SUBSEQUENT EVENTS

S-1 Effectiveness

On October 8, 2024, the Company’s registration statement on Form S-1 related to its IPO was declared effective by the SEC.

Common Stock Conversion

On September 20, 2024, the Company’s Board and KC Parent, the owner of the Company’s outstanding shares of common stock, approved the Common Stock Conversion, effected immediately following the effectiveness of the Company’s registration statement on Form S-1. As a result, on October 8, 2024,756,816,836 shares of Class A common stock outstanding, with a par value of $0.0001 per share, were converted to 90,366,089 shares of common stock, with a par value of $0.01 per share, at a ratio of 8.375-to-one.

All current and prior period shares outstanding, per share amounts, and equity-based compensation awards disclosures, as applicable, have been adjusted to retrospectively reflect the Common Stock Conversion in the unaudited condensed consolidated interim financial statements and notes thereto.

Amended and Restated Certificate of Incorporation

On October 8, 2024, the Company's Certificate of Incorporation was amended and restated to authorize the Company to issue two classes of stock: common stock and preferred stock. The Company may issue up to 25,000,000 shares of preferred stock with a par value of $0.01 per share and 750,000,000 shares of common stock with a par value of $0.01 per share.

Modification of 2022 Plan

On September 20, 2024, the Company’s Board approved an amendment to the 2022 Plan which became effective on October 8, 2024, after the effectiveness of the Company’s registration statement on Form S-1 for its IPO. In response to the Common Stock Conversion, the amendment provides that the aggregate number of shares available for issuance pursuant to the awards shall be equal to the sum of (i)15,666,912 shares and (ii) an annual increase on the first day of each calendar year beginning on January 1, 2026 and ending January 1, 2034 equal to the lesser of (A)4% of the number of shares outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares as determined by the Board. Additionally, subsequent to the amendment, all unexercised stock options and unvested RSUs will be settled in shares when stock options are exercised and RSUs vest according to their original vesting schedules. As a result, the liability-classified awards will be reclassified as equity within additional paid-in capital as of the modification date and the Company will not remeasure the awards at fair value each reporting period during the remaining vesting period in accordance with equity-classification under ASC 718. This modification will impact 119 Participants and will not result in incremental compensation expense.

Liquidating Distribution and Modification of PIUs Plan

On October 8, 2024, pursuant to the KC Parent, LP Agreement, the board of managers and the General Partner of KC Parent approved a plan of dissolution and liquidation of KC Parent whereby KC Parent may distribute shares of the Company’s common stock to the limited partners of KC Parent in lieu of liquidating its assets for cash in connection with an IPO. As of the date of the IPO, the sole assets of KC Parent consisted of 90,366,089 shares of the Company’s common stock and the fair value of such shares was $24.00 per share. KC Parent's shares of the Company's common stock were allocated to each of the capital accounts of its limited partners, including PIUs held by PIU Recipients, based on their respective ownership. KC Parent then distributed the 90,366,089 shares of the Company’s common stock to its limited partners (the “Liquidating Distribution”). The Company expects the Liquidating Distribution to result in a modification to the PIUs Plan under ASC 718, and as such, the Company will recognize equity-based compensation expense within selling, general, and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive (loss) income on the date of the modification.

Initial Public Offering

On October 8, 2024, an underwriting agreement was executed in which the Company agreed to sell 24,000,000 shares of common stock to the underwriters based on an initial public offering price of $24.00 per share. The Company received net proceeds of $544.3 million, or $22.68 per share after underwriting discounts and commissions, on October 10, 2024, when the shares were issued and the initial offering closed. Additionally, on October 10, 2024, the underwriters exercised in full their option to purchase up to 3,600,000 additional shares of common stock based on the initial offering price of $24.00 per share. The net proceeds of $81.7 million, after underwriting discounts and commissions, were received by the Company on October 15, 2024, when the sale was completed. The total net proceeds from the initial offering and underwriters option, less approximately $9.8 million in direct offering costs incurred in connection with the IPO, will be recorded to common stock and additional paid in capital on the consolidated balance sheets following the IPO.

IPO Launch Grants under 2022 Plan

On October 9, 2024, the Company granted equity-based compensation awards to certain employees in connection with the IPO including 223,363 RSUs granted to highly-tenured teachers with aone-year service-based vesting condition, and 172,286 RSUs and 135,350 stock options granted to other employees that will vest ratably over a three-year period. These grants were issued post-Common Stock Conversion at a grant date fair value of $24.00 for RSUs and $12.50 for stock options.

Employee Stock Purchase Plan

On October 9, 2024, the Board adopted and approved the Company's 2024 Employee Stock Purchase Plan (the "ESPP") which permits eligible employees of the Company to purchase shares of common stock at periodic intervals. The aggregate number of shares of common stock that will initially be reserved for issuance under the ESPP shall be equal to the sum of (i)2,287,321 million shares and (ii) an annual increase beginning on January 1, 2026 and ending January 1, 2034 by an amount equal to the lesserof (A)1% of the shares outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares as determined by the board of directors; provided that in no event will more than 5,567,177 million shares of the Company’s common stock be available for issuance under the ESPP.

Termination of Management Services Agreement

In connection with the completion of the IPO on October 10, 2024, the Management Services Agreement with Partners Group was terminated in accordance with its terms.

First Lien Revolving Credit Facility Amendment

On October 10, 2024, the Company entered into an amendment to the Credit Agreement to increase the total borrowing capacity of the First Lien Revolving Credit Facility by $80.0 million to $240.0 million and extend the maturity date of $225.0 million of the facility (the “Revolving Extended Tranche Commitments”), inclusive of $145.0 million of commitments prior to the amendment, to the earlier of October 2029 or 91 days prior to the First Lien Term Loan Facility maturity date (“Springing Maturity Date”), unless on or prior to the Springing Maturity Date, the Company repays, repurchases, or redeems, in full, the First Lien Term Loan Facility (collectively, the “RCF Amendment”). The maturity date of the remaining $15.0 million of non-extended commitments under the First Lien Revolving Credit Facility was unchanged from June 2028. Additionally, pursuant to the RCF Amendment, the cap on the amount of letters of credit that can be drawn against the borrowing capacity of the First Lien Revolving Credit Facility increased to $172.5 million.

Repayment and Repricing of First Lien Term Loan

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