Quarterly Report for Quarter Ending October 3, 2026 (Form 10-Q)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited condensed consolidated financial statements and notes thereto for the three and nine months ended October 3, 2026 and September 27, 2025 included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated financial statements and notes thereto for the fiscal year ended January 3, 2026 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 13, 2026. Some of the information included in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" sections of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Our Company

KinderCare Learning Companies, Inc. ("the Company," "we," "us," and "our") is a leading provider of high-quality early childhood education ("ECE") in the United States. We are a mission-driven organization, rooted in a commitment to providing all children with the very best start in life. We serve children ranging from six weeks to 12 years of age across our market-leading footprint of 1,556 early childhood education centers with center capacity for 209,418 children and 1,208 before- and after-school sites located in 42 states and the District of Columbia as of October 3, 2026.

Key Performance Metrics

Total centers and sites

We measure and track the number of centers and sites because, as our number of centers and sites change, it highlights our geographic footprint and potential growth in revenue. We believe this information is useful to investors as an indicator of opportunity for revenue growth and operational expansion and can be used to measure and track our performance over time. We define the number of centers and sites as the number of centers and sites at the beginning of the period plus openings and acquisitions, minus any permanent closures for the period. A permanently closed center or site is a center or site that has ceased operations as of the end of the reporting period that management does not intend on reopening.

As of October 3, 2026, we operated 1,556 early childhood education centers with a center capacity for 209,418 children as compared to 1,595 early childhood education centers as of September 27, 2025, with a center capacity for 213,709 children. During the nine months ended October 3, 2026, total centers decreased by 45 due to 69 permanent center closures as part of our ongoing center optimization initiative, partially offset by opening 14 centers and acquiring 10 centers. During the nine months ended September 27, 2025, total centers increased by 21 due to acquiring 20 centers and opening 13 centers, partially offset by 12 permanent center closures.

As of October 3, 2026, we operated 1,208 before- and after-school sites, an increase of 70 sites from 1,138 before- and after-school sites as of September 27, 2025. Total before- and after-school sites increased by 55 during the nine months ended October 3, 2026 due to opening 178 sites, partially offset by 123 permanent closures. Total before- and after-school sites increased by 113 during the nine months ended September 27, 2025 due to opening 212 sites, partially offset by 99 permanent site closures.

Average weekly ECE FTEs

Average weekly ECE full-time enrollment ("FTEs") is a measure of the number of full-time children enrolled and charged tuition weekly in our centers. We calculate average weekly ECE FTEs based on weighted averages; for example, an enrolled full-time child equates to one average weekly ECE FTE, while a child enrolled for three full days equates to 0.6 average weekly ECE FTE. This metric is used by management and we believe is useful to investors as it is the key driver of revenue generated and variable costs incurred in our operations.

Average weekly ECE FTEs decreased by 8,285, or 5.9%, and 6,197, or 4.3%, for the three and nine months ended October 3, 2026 as compared to the three and nine months ended September 27, 2025, respectively, primarily due to lower FTEs at same-centers, as well as operating fewer centers. The impact of operating fewer centers from our ongoing center optimization initiative reduced average weekly ECE FTEs by approximately 190 basis points and 130 basis points for the three and nine months ended October 3, 2026 as compared to the three and nine months ended September 27, 2025, respectively.

We define same-center to be centers that have been operated by us for at least 12 months as of the period end date or, in other words, centers that are starting their second year of operation. Excluded from same-centers are any closed centers at the end of the reporting period and any new or acquired centers that have not yet met the same-center criteria.

ECE same-center occupancy

ECE same-center occupancy is a measure of the utilization of center capacity. We calculate ECE same-center occupancy as the average weekly ECE same-center full-time enrollment divided by the total of the ECE same-centers' capacity during the period. Center capacity is determined by regulatory and operational parameters and can fluctuate due to changes in these parameters, such as changing center structures to meet the demands of enrollment or changes in regulatory standards. This metric is used by management and we believe is useful to investors as it measures the utilization of our centers' capacity in generating revenue.

ECE same-center occupancy decreased by 320 basis points and 260 basis points for the three and nine months ended October 3, 2026 as compared to the three and nine months ended September 27, 2025, respectively, primarily due to lower enrollment. For both the three and nine months ended October 3, 2026, our center optimization initiative positively impacted ECE same-center occupancy by approximately 150 basis points as a result of closing underperforming centers.

ECE same-center revenue

ECE same-center revenue is revenues earned from centers that have been operated by us for at least 12 months as of the period end date and is a measure used by management to attribute a portion of our revenue to mature centers as compared to new or acquired centers. This metric is used by management and we believe is useful to investors as it highlights trends in our core operating performance. The following table is in thousands:

ECE same-center revenue decreased by $19.9 million, or 3.2%, for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025. This decrease was driven by $20.8 million lower revenue from centers that were classified as same-centers as of both October 3, 2026 and September 27, 2025. Additionally, same-center revenue decreased by $12.0 million due to center closures as of October 3, 2026. These decreases were partially offset by $12.9 million in ECE same-center revenue growth driven by the impact of new and acquired centers not yet classified as same-centers as of September 27, 2025.

ECE same-center revenue decreased by $48.2 million, or 2.6%, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. This decrease was driven by $47.7 million lower revenue from centers that were classified as same-centers as of both October 3, 2026 and September 27, 2025. Additionally, same-center revenue decreased by $38.7 million due to center closures as of October 3, 2026. These decreases were partially offset by $38.2 million in ECE same-center revenue growth driven by the impact of new and acquired centers not yet classified as same-centers as of September 27, 2025.

Results of Operations

We operate as a single operating segment to reflect the way our chief operating decision maker reviews and assesses the performance of the business. Refer to Note 1 and Note 16 of our unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, and Note 1 and Note 23 of our audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2026 for additional information regarding the Company's accounting policies and segment disclosures. The period-to-period comparisons below of financial results are not necessarily indicative of future results.

The following table sets forth our results of operations including as a percentage of revenue for the three months ended October 3, 2026 and September 27, 2025 (in thousands, except per share data and percentages):

The following table sets forth our results of operations including as a percentage of revenue for the nine months ended October 3, 2026 and September 27, 2025 (in thousands, except per share data and percentages):

Comparison of the Three Months Ended October 3, 2026 and September 27, 2025

Revenue

Total revenue decreased by $11.5 million, or 1.7%, for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025.

Revenue from early childhood education centers decreased by $19.6 million, or 3.1%, for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025. The decrease was driven by 5.9% lower enrollment, partially offset by 2.8% increase from higher tuition rates. The impact of operating fewer centers from our ongoing center optimization initiative reduced enrollment by approximately 190 basis points for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025.

The $19.6 million decrease in revenue from early childhood education centers for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025 was comprised of $19.9 million lower ECE same-center revenue, partially offset by a $0.3 million net increase in revenue from centers that were not classified as same-centers.

Revenue from before- and after-school sites increased by $8.2 million, or 16.4%, for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025 primarily due to increased enrollment and opening new sites.

Cost of services (excluding depreciation and impairment)

Cost of services (excluding depreciation and impairment) increased by $8.1 million, or 1.5%, for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025. The increase was driven by $6.0 million higher insurance,

janitorial, utilities and food costs, combined with an increase in marketing spend. The increase was also attributable to $4.4 million higher rent expense from new and acquired centers, partially offset by center closures from our center optimization initiative. These increases were partially offset by $4.3 million lower personnel costs due to reduced labor hours as a result of lower enrollment.

Depreciation and amortization

Depreciation and amortization remained relatively consistent for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025.

Selling, general, and administrative expenses

Selling, general, and administrative expenses decreased by $0.5 million, or 0.7%, for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025. This was driven by $3.2 million lower personnel costs primarily due to reduced expenses from long-term incentive awards and non-qualified deferred compensation plans, partially offset by increased severance expense from organizational changes during the quarter. The decrease was also due to $1.6 million in professional fees as a result of investments in new technology and digital solutions as well as the July 2025 repricing amendment to the First Term Loan Facility during the three months ended September 27, 2025. These decreases were partially offset by a $3.4 million increase in closed center costs due to our center optimization initiative, primarily related to rent, maintenance, and property tax expenses on closed centers which continue to have remaining lease obligations.

Impairment losses

Impairment losses increased by $83.4 million, for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025, primarily driven by $71.4 million in goodwill impairment as a result of testing performed during the third quarter of fiscal 2026 triggered by further deterioration in our market capitalization from an additional decline in our stock price. Additionally, impairment of long-lived assets increased by $8.4 million due to more centers closed or identified for closure and centers with reduced cash flow projections as a result of lower operational performance during the three months ended October 3, 2026. Indefinite-lived intangible assets impairment of $3.7 million was recognized during the three months ended October 3, 2026 as the result of fully impairing certain legacy trade names and trademarks.

Interest expense

Interest expense decreased by $5.8 million, or 24.0%, for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025. This decrease was primarily driven by the $5.4 million loss on extinguishment of debt recognized in the three months ended September 27, 2025 in connection with the July 2025 repricing amendment to the First Lien Term Loan Facility.

Interest income

Interest income remained relatively consistent for the three months ended October 3, 2026 as compared to the three months ended September 27, 2025.

Other expense (income), net

Other expense (income), net decreased by $2.6 million to an expense for the three months ended October 3, 2026 as compared to income for the three months ended September 27, 2025. The decrease was primarily comprised of net changes in realized and unrealized gains from investments held in deferred compensation asset trusts.

Income tax (benefit) expense

Income taxes decreased $9.9 million to an income tax benefit for the three months ended October 3, 2026, as compared to income tax expense for the three months ended September 27, 2025. The effective tax rate was 8.8% for the three months ended October 3, 2026, as compared to 26.7% for the three months ended September 27, 2025. Compared to the statutory rate, the reduction in the effective tax rate for the three months ended October 3, 2026 was primarily due to nondeductible goodwill impairment during the third quarter, combined with the relative impact of recurring nondeductible expenses, which had a proportionally greater impact on the effective tax rate when applied to the loss before income taxes for the three months ended October 3, 2026. Compared to the statutory rate, the difference in the effective tax rate for the three months ended September 27, 2025, was primarily due to the impact of state and local taxes.

Comparison of the Nine Months Ended October 3, 2026 and September 27, 2025

Revenue

Total revenue decreased by $9.8 million, or 0.5%, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025.

Revenue from early childhood education centers decreased by $34.1 million, or 1.8%, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. The decrease was driven by 4.3% lower enrollment, partially offset by 2.5% increase from higher tuition rates. The impact of operating fewer centers from our ongoing center optimization initiative reduced enrollment by approximately 130 basis points for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025.

The $34.1 million decrease in revenue from early childhood education centers for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025 was comprised of $48.2 million lower ECE same-center revenue, partially offset by a $14.1 million net increase in revenue from centers that were not classified as same-centers.

Revenue from before- and after-school sites increased by $24.3 million, or 15.6%, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025 primarily due to opening new sites and higher rates.

Cost of services (excluding depreciation and impairment)

Cost of services (excluding depreciation and impairment) increased by $90.8 million, or 5.8%, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. The increase was driven by $40.1 million higher insurance, janitorial, utilities and food costs combined with an increase in marketing spend. Additionally, the increase was attributable to $30.1 million of Employee Retention Credits ("ERC") recognized during the nine months ended September 27, 2025, which offsets cost of services (excluding depreciation and impairment) in the comparative period. Rent expense increased $20.3 million due to new and acquired centers and sites as well as contractual rent increases, partially offset by center closures from our center optimization initiative.

Depreciation and amortization

Depreciation and amortization increased by $1.0 million, or 1.1%, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. This increase was primarily due to higher depreciation expense as a result of assets placed into service from internally developed software and system upgrades.

Selling, general, and administrative expenses

Selling, general, and administrative expenses decreased by $6.7 million, or 3.0%, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. Personnel costs were $11.9 million lower primarily due to reduced incentive compensation expense reflective of operating performance, as well as lower stock-based compensation due to certain awards becoming fully vested combined with awards granted during the current period at a lower fair value than previously granted awards. This decrease was partially offset by a $4.4 million increase in closed center costs due to our center optimization initiative primarily related to rent, maintenance and property tax expenses on closed centers which continue to have remaining lease obligations.

Impairment losses

Impairment losses increased by $394.1 million, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. This increase was primarily driven by a $344.9 million goodwill impairment as a result of testing performed during the first and third quarters of fiscal 2026 triggered by deterioration in our market capitalization from declines in our stock price. Additionally, impairment of long-lived assets increased by $45.5 million due to more centers with reduced cash flow projections as a result of lower operational performance as well as centers closed and early lease terminations executed during the nine months ended

October 3, 2026. Indefinite-lived intangible assets impairment of $3.7 million was recognized during the nine months ended October 3, 2026 as the result of fully impairing certain legacy trade names and trademarks.

Interest expense

Interest expense decreased by $9.5 million, or 14.8%, for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. This decrease was primarily driven by a $7.5 million decrease in term loan interest expense due to lower interest rates on the First Lien Term Loan Facility, partially as a result of the July 2025 repricing amendment, and the $5.4 million loss on extinguishment of debt recognized in the nine months ended September 27, 2025 in connection with the amendment. This decrease was partially offset by losses on interest rate derivative contracts reclassified into net loss during the nine months ended October 3, 2026 compared to gains reclassified into net income during the nine months ended September 27, 2025.

Interest income

Interest income remained relatively consistent for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025.

Other income, net

Other income, net remained relatively consistent for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025 and was primarily comprised of net changes in realized and unrealized gains from investments held in deferred compensation asset trusts.

Income tax (benefit) expense

Income taxes decreased $34.5 million to an income tax benefit for the nine months ended October 3, 2026, as compared to income tax expense for the nine months ended September 27, 2025. The effective tax rate was 2.7% for the nine months ended October 3, 2026 as compared to 27.2% for the nine months ended September 27, 2025. Compared to the statutory rate, the reduction in the effective tax rate for the nine months ended October 3, 2026 was primarily due to nondeductible goodwill impairment recorded during the first and third quarters of the fiscal year ending January 2, 2027. Compared to the statutory rate, the difference in the effective tax rate for the nine months ended September 27, 2025, was due to state and local income taxes.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we also provide the below non-GAAP financial measures. EBIT, EBITDA, adjusted EBITDA, adjusted net (loss) income, and adjusted net (loss) income per common share (collectively referred to as the "non-GAAP financial measures") are not presentations made in accordance with GAAP, and should not be considered as an alternative to net income or loss, income or loss from operations, or any other performance measure in accordance with GAAP, or as an alternative to cash provided by operating activities as a measure of our liquidity. Consequently, our non-GAAP financial measures should be considered together with our consolidated financial statements, which are prepared in accordance with GAAP.

We present EBIT, EBITDA, adjusted EBITDA, adjusted net (loss) income, and adjusted net (loss) income per common share because we consider them to be important supplemental measures of our performance and believe they are useful to securities analysts, investors, and other interested parties. Specifically, adjusted EBITDA and adjusted net (loss) income allow for an assessment of our operating performance without the effect of charges that do not relate to the core operations of our business. We also use these non-GAAP financial measures for budgeting and compensation purposes.

EBIT, EBITDA, adjusted EBITDA, adjusted net (loss) income, and adjusted net (loss) income per common share have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

EBIT, EBITDA, and Adjusted EBITDA

EBIT is defined as net (loss) income adjusted for interest and income tax (benefit) expense. EBITDA is defined as EBIT adjusted for depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for impairment losses, stock-based compensation, COVID-19 Related Stimulus, net, and other costs because these charges do not relate to the core operations of our business.

We present EBIT, EBITDA, and adjusted EBITDA because we consider them to be important supplemental measures of our performance and believe they are useful to securities analysts, investors, and other interested parties. We believe adjusted EBITDA is helpful to investors in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.

The following table shows EBIT, EBITDA, and adjusted EBITDA for the periods presented, and the reconciliation to its most comparable GAAP measure, net (loss) income, for the periods presented (in thousands):

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

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

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

Explanation of add backs:

Liquidity and Capital Resources

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

We expect to continue to meet our liquidity requirements for at least the next 12 months under current operating conditions with cash generated from operations, cash on hand, and to the extent necessary and available, through borrowings under the Credit Agreement. If the need arises for additional expenditures, we may seek additional funding. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under "Risk Factors" included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 3, 2026. In the future, we may attempt to raise additional capital through the sale of equity securities or debt financing arrangements. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. We cannot provide assurance that we will be able to raise additional capital in the future on favorable terms, or at all. Any inability to raise capital could adversely affect our ability to achieve our business objectives.

Debt facilities

As of October 3, 2026, our Credit Agreement consists of a $962.0 million First Lien Term Loan Facility and a $262.5 million First Lien Revolving Credit Facility.

The First Lien Term Loan Facility bears interest at a variable rate equal to the Secured Overnight Financing Rate ("SOFR") plus 2.75% per annum. In addition, amounts drawn under the First Lien Revolving Credit Facility bear interest at SOFR plus an applicable rate between 2.00% and 2.50% 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 $172.5 million. The Company pays certain fees under the First Lien Revolving Credit Facility, including a fronting fee on outstanding letters of credit of 0.125% per annum and a commitment fee 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. Additionally, fees on the outstanding letters of credit bear interest at a rate equal to the applicable rate for amounts drawn under the First Lien Revolving Credit Facility.

As of October 3, 2026, there were no outstanding borrowings under the First Lien Revolving Credit Facility and we had an available borrowing capacity of $187.7 million after giving effect to the outstanding letters of credit under the Credit Agreement of $74.8 million.

The interest rates effective as of October 3, 2026 were 6.82% on the First Lien Term Loan Facility, 2.00% on outstanding letters of credit in addition to a 0.125% fronting fee, and 0.25% on the unused portion of the First Lien Revolving Credit Facility.

The weighted average interest rate during the nine months ended October 3, 2026 for the First Lien Term Loan Facility was 6.46%.

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

Under the Credit Agreement, the financial loan covenant is a quarterly maximum First Lien Term Loan Facility net leverage ratio (as defined in the Credit Agreement) to be tested only if, on the last day of each fiscal quarter, the amount of revolving loans outstanding on the First Lien Revolving Credit Facility (excluding all letters of credit) exceeds 35% of total revolving commitments on such date. As this threshold was not met as of October 3, 2026 the quarterly maximum First Lien Term Loan Facility net leverage ratio financial covenant was not in effect. Nonfinancial loan covenants restrict our ability to, among other things, incur additional debt; make fundamental changes to the business; make certain restricted payments, investments, acquisitions, and dispositions; or engage in certain transactions with affiliates.

An annual calculation of excess cash flows 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.

The First Lien Term Loan Facility matures in June 2030. The $252.5 million of extended commitments under the First Lien Revolving Credit Facility mature in October 2029, while the $10.0 million of non-extended commitments have a maturity date of June 2028.

As of October 3, 2026, we were in compliance with all covenants of the Credit Agreement.

In February 2024, we entered into a credit facilities agreement, dated as of February 1, 2024, which allows for $20.0 million in letters of credit to be issued ("LOC Agreement"). We pay an interest rate of 5.95% on any outstanding balance and 0.25% on any unused portion. The LOC Agreement matures in December 2026. As of October 3, 2026, there were $20.0 million outstanding letters of credit under the LOC Agreement.

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

Refer to Note 8 of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding our debt facilities.

Cash flows

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

Net cash provided by operating activities

Cash provided by operating activities decreased by $124.5 million for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. Net income, adjusted for non-cash items, decreased by $72.1 million primarily due to the decline in operating performance. The net changes in operating assets and liabilities resulted in a $52.4 million decrease in cash primarily driven by lower accrued compensation due to timing of our fiscal quarter ends as well as payments for early lease terminations during the nine months ended October 3, 2026.

Net cash used in investing activities

Cash used in investing activities decreased by $23.1 million for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025, primarily driven by lower payments for acquisitions.

Net cash used in financing activities

Cash used in financing activities increased by $0.9 million for the nine months ended October 3, 2026 as compared to the nine months ended September 27, 2025. The increase was primarily due to higher principal payments on the First Lien Term Loan Facility driven by the timing of fiscal quarter ends.

Cash requirements

As of October 3, 2026, we had the following obligations:

Certain agreements may have cancellation penalties for which, if we were to cancel, we would be required to pay up to approximately $5.2 million. Other cancellation penalties cannot be estimated as we cannot predict the occurrence of future agreement cancellations. Refer to Note 11 and Note 13 of our audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2026 for additional detail related to our contractual obligations.

Critical Accounting Estimates and Significant Judgments

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

There have been no changes to our critical accounting policies described within Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2026. For a description of our other significant accounting policies, refer to Note 1 in both our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2026.