KinderCare Learning Companies, Inc.

Good day, everyone, and welcome to today's KinderCare third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note this call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms. Olivia Kerr with Investor Relations. Please go ahead.

Thank you, and good evening, everyone. Welcome to KinderCare's third quarter earnings call. After today's call, a replay will be available on our website. Joining me from the company are our Chief Executive Officer, Paul Thompson, and Chief Financial Officer, Tony Amandi. Following Paul and Tony's comments today, we will have a question and answer session. During this call, we will be discussing non-GAAP financial measures. most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release. And finally, a reminder that certain statements made today may be forward-looking statements. These statements are made based upon the management's current expectations and beliefs concerning future events impacting the company and involve a number of uncertainties and risks including, but not limited to, those described in our earnings release and other findings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statement. And with that, I'd like to turn the call over to our Chief Executive Officer, Paul Thompson. Paul?

Thank you, Olivia, and thanks to everyone joining us for our first earnings call as a public company. I'm going to start today's call with an introduction to KinderCare for those we may not have met during the IPO process. Overall, we are the U.S. market leader in early childhood education. Our team of approximately 42,000 teachers and staff work together across our more than 2,500 centers and sites to fulfill our mission to provide America's families with high quality early childhood education and reliable care. Together, we build confidence for kids and their families in the future we share. We have been inspired by this mission for over 50 years. We operate in 40 states, the District of Columbia, and in nearly every major market in the country, serving children from six weeks to 12 years old. We have a compelling business model and growth thesis driven by two major factors. First, earliest childhood industry dynamics are favorable because of a growing need from families for quality childcare centers and a persistent undersupply. This market is highly fragmented. We see tremendous growth potential as the top three providers of early childhood education take up less than 5% of what we believe is a $76 billion market. Our scale, resources, and operational excellence position us exceptionally well to increase our market share. We see growing challenges from many smaller providers that have received significant support from government stimulus following the pandemic. As most of you know, these stimulus dollars expire this year, and KinderCare is prepared to help support impacted communities. The second and more important factor is we have meaningful competitive advantages. Our scale and diverse high-quality offerings across our over 2,500 locations in nearly every major US market allow us to meet the unique needs of working families and employers. We are the number one provider supporting families eligible for government subsidy. Unlike most childcare centers without the infrastructure to enable government subsidized tuition, KinderCare has strategically prioritized it as a core competency. As a result, more than 30% of our revenue comes from supporting families who depend on childcare subsidies. We also benefit from bipartisan durability the government programs that fund these grants over the past 18 years and across a mix of democratic and republican controlled houses the child care and development block grant has grown annually by four percent on average we also provide customized flexible child care benefits through partnerships with over 700 employers our employer-sponsored tuition plans have been a growing component of our revenue and now stand at 20% of our total. KinderCare operates over 70 onsite employer-sponsored centers and offers access to tuition benefits and a backup care at our 1,500 standalone centers. Lastly, we have unique and growing offerings beyond our core KinderCare brand. Our 2022 acquisition of CREM schools increased our total addressable market to include the premium end of the spectrum. where we currently operate over 40 centers. We see the potential to grow this brand as there is a large opportunity for premium education experiences and specialized enrichment programs like language or stem. And through our champions brand, we have a network of over 1000 sites providing before and after school and summer programs for school age children. With that backdrop, I'd like to outline our strategic priorities to create value for KinderCare shareholders in the quarters and years ahead. We have three primary avenues of growth across organic initiatives, expanding B2B relationships, and through portfolio expansion. Across each avenue, KinderCare has a long history of successful execution and see a significant and diverse runway for growth in the future. We seek to drive consistent, robust organic growth which includes both tuition increases and center occupancy optimization across our existing portfolio. Beginning with tuition growth, KinderCare and the industry have a strong history of measured and durable growth in tuition, where our strategic target is to maintain a 50 to 100 basis point positive spread ahead of our wage growth. Apart from our CREM locations, where we believe our pricing is below market, we expect consistent tuition growth to be in the low single-digit range. Turning to occupancy, with the exception of the pandemic recovery, we've remained committed to our strategy to drive portfolio-wide occupancy by approximately 1% point per year. To frame the impact on our financials, each 2% occupancy gain is worth approximately 1% in annual EBITDA margin. We are actively working to directly address opportunities with the benefit of our scale and resources. With digital tools that help elevate the operational consistency across our portfolio, incremental occupancy growth to KinderCare's economics is not linear, but exponential, as better performing centers scale fixed costs and gain additional pricing power. We also plan to expand our network of B2B relationships with broader partnership for both on-site and near-home child care. The same growth paradigm holds true for our champions programs, where we continue to broaden our footprint before and after school care at local school sites. Our third avenue of growth is through new centers, both new center openings and tuck-in acquisitions. As I noted, there is significant white space in our industry, and KinderCare's backlog of new builds and tuck-in targets is large and highly visible as it typically takes several months to vet, approve, and launch a new center. Additionally, we have historically demonstrated that KinderCare has a strong playbook to add value through M&A, and we believe there may be an increasingly viable opportunity as pandemic stimulus capital expires. Best of all, when taking each of these growth options in totality, KinderCare can fund the majority of these initiatives with our stable and growing cash flow. So to close my remarks, I'll reiterate how excited we are about our future growth, and I am extremely proud to lead such a strong team to achieve what we know is possible for our shareholders. And with that, I will turn the call over to Tony.