KinderCare Learning Companies, Inc.

Welcome to KinderCare's first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, please simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. It is now my pleasure to introduce Olivia Kier, KinderCare's VP of Investor Relations. Ms. Kier, you may begin your conference.

Thank you and good evening, everyone. Welcome to KinderCare's first quarter earnings call. Joining me from the company are 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, the 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 management's current expectations and beliefs concerning future events impacting the company and involve a number of uncertainties and risks. which are explained in detail in our most recent annual report on Form 10-K and other filings with the SEC. Please refer to these filings for a more detailed discussion of forward-looking statements and the risk and uncertainties of such statements. The actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statements. All forward-looking statements are made as of today, and except as required by law, KinderCare undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise. And with that, I'd like to turn the call over to Chief Executive Officer Paul Thompson.

Thank you, Olivia, and we appreciate everyone joining us today. The first quarter's results were in line with our 2025 guidance. highlighted by a 2% increase in revenue and underpinned by growth in both our early childhood education centers and champion sites. Our focus on driving profitability continues to be successful as adjusted EBITDA came in at $84 million, an increase of 12% year over year, and net income increased to $21 million. Given the multiple operational levers we can pull, KinderCare is well positioned for the remainder of the year. As you all know, the current macro volatility can impact all businesses and overall consumer spending, but we have advantages over other sectors. To be clear, childcare is an essential life service for working families that consistently ranks as a top household spending category, and that has not changed. I was pleased to see that the importance of childcare to American families was underlined when on May 2nd, The President delivered a budget outline to Congress containing no mentions of changes to the federal funding level of the Child Care Development Block Grant. I'll talk more about that in a moment, but overall, we continue to see that demand for high-quality care is outpacing supply. This dynamic supports our market-leading position and is durable in a range of economic environments. In Q1, we saw a delay in the time to enrollment decision due to consumer hesitancy and uncertainty. We believe this to be the leading driver to a modest 50 basis point year over year decline in same center occupancy. We highlighted slower enrollment progress to begin 2025 on our last call, so the first quarter was in line with expectations. We continue to monitor price elasticity and affordability as a decision factor for those families touring our facilities. Our data confirms that price has not been a friction point, which we believe supports our view that demand remains real, but simply delayed. We would also remind you all that KinderCare has advantages in the diversity of our offerings. We pride ourselves on our ability to offer early childhood education solutions for all families, regardless of economic background. Families value our unmatched flexibility and capability to meet them at work, at their child's school or in their neighborhood. We had multiple business wins this quarter. Across our ECE brands, we added 10 centers during the first quarter. We expanded our footprint into Idaho through an acquisition made just outside of Boise. We are happy to have the opportunity to build relationships with working families in Idaho and help those families have access to affordable, quality early childhood education they can depend on. Of our new center openings for the quarter, two were cram schools. The capability to serve those families who are at the premium end of the market and looking for specialized enrichment programs continues to be a strong part of our portfolio and a differentiator for many families. We are excited about two new KinderCare for Employer centers. Our long standing partnership with Halliburton has expanded to an onsite center, which has become critical as they return to their Houston office earlier this year. Our flexibility isn't only for corporate employers and families. It is also attractive for community partnerships. We opened a new center in Montgomery County, Indiana, a community which had been struggling in recent years with a lack of childcare. In fact, less than 40% of children in the county under the age of five had access to high quality childcare, which was negatively affecting families and businesses in the community. By bringing together private and philanthropic resources, a number of businesses in the county were able to consolidate funding to build the Montgomery County Early Learning Center. KinderCare is honored to partner with this community as the operator of this exciting new center. The collaboration between businesses in the area to find a solution to benefit all their workers and families is inspiring, and we are looking forward to serving the community of Montgomery County for years to come. Across our B2B platforms and partnerships, Our tuition benefit program continues to grow as more and more companies view early childhood education support as a core benefit for their workforce. In Q1, we began partnerships with Dollar General, LG Energy Solutions, and Hand and Stone Massage to provide their employees with our tuition benefit offering in our community-based centers. Our mix of onsite and community-based capabilities are increasingly attractive for employers seeking to offer their employees more than one way to provide a child care benefit, and for families who appreciate the high-quality care and flexibility of KinderCare. Turning to Champions, KinderCare continued executing on our growth strategy by enhancing established relationships and expanding to new districts. In Q1, Champions added 19 new sites, including sites within 10 new districts. This brings our total Champion sites to 1,038 as of March 29th. Overall, our growth pipeline continued to perform well during the first three months of the year. In Q1, we acquired five centers, and we expect additional opportunities for acquisitions to continue as the year progresses. We believe KinderCare's quality, scale, and brand recognition make us an acquirer of choice within the market. Every day, we have conversations with smaller operators who are looking to monetize and exit, or perhaps simply ready to move on to their next chapter. Many reach out to us proactively because KinderCare is their first choice to carry on their legacy. They recognize us as a provider that will continue a high level of care for their community and one that is experienced at creating a smooth transition for teachers, staff, and families. We remain encouraged on the organic growth of our portfolio as we see additional opportunities for occupancy improvement in our lower performing centers. we always put a special emphasis on improving lower performing centers, giving the high ceiling of potential and the overall positive impact it can have for our business. To address challenges in these centers, we are combining an intensified focus on family and teacher engagement, additional training with center staff, implementing best practices from our higher performing centers, and leveraging dedicated resources where they are needed to achieve better results. As we mentioned on our call in March, We've seen solid improvement in occupancy amongst our lowest quintile centers. There's still work to do, and we expect this strategy to be a continuous process that will create additional upside in periods of normalized occupancy growth. We also focus on operational efficiency and continue to drive strong top line margin by maintaining a healthy spread between wage and tuition increases. We take a measured and strategic approach to ensure we provide attractive pay and benefits for our career professionals while balancing the cost of care for families. The ability for us to consistently achieve that spread without compromising the quality of care we provide has been a driving factor in our long-term profitability improvements. Our disciplined cost management continues to yield results, with G&A expenses once again down as a percentage of revenue, illustrating our operating leverage at scale. We believe the successful integration of CREM into our same center portfolio And the enrollment upside that exists with this brand will only further accelerate the margin expansion opportunity we have in front of us. Operational excellence is just one of the pillars which support our profitability. Our other pillars, educational excellence, people, and health and safety, are just as critical to our success. Starting with educational excellence, we're committed to delivering the best possible early childhood education to children in our care. We do this through proprietary, differentiated curriculum, our commitment to third-party accreditation, and our use of research-based assessment tools. Nearly 90% of our programs are nationally accredited, providing third-party validation that we're delivering the best quality educational experiences to children in our programs. Additionally, regular assessments have shown that children enrolled in KinderCare programs outperform their peers. And furthermore, the longer they remain enrolled, the better their learning outcomes. Our people are the foundation of our continued success, and we're proud of our strong culture. We've partnered with Gallup since 2012 to measure, improve, and sustain a high level of engagement across our employees and families. I'm proud to share that KinderCare has once again won Gallup's Exceptional Workplace Award, which makes this the ninth consecutive year we have received this distinction. No other early childhood education provider has come close to achieving such lasting acknowledgement of our culture. We're extremely proud to have once again earned this recognition. Health and safety is our fourth pillar, and we employ robust protocols and practices that support the overall well-being of our employees and the children in our care. Our commitment to this belief is resolute and unwavering. When issues arise, we quickly assess the situation, initiate transparency with parents and local regulators, self-report even minor infractions to licensing bodies, and take immediate corrective actions as warranted. Over the past quarter, we have fielded a number of questions on potential impacts of federal funding changes or efficiency efforts by the current administration on our business. First, I'll point you to page 11 in this quarter's supplemental deck posted to our IR website, which provides an outline of findings from a report conducted by Capstone. a public policy advisory firm. The report contains a background on early child education funding by the federal government, the mechanisms of the funding, and how subsidy dollars for early child education work their way from Congress to families. We anticipate the Congressional budget to be approved in the back half of this year and believe there is broad support across both sides of the aisle to continue funding this critical need for American families and children. According to Capstone, government efficiency efforts have been primarily directed toward administrative staff reductions at health and human services, which we do not see as having an impact on block grant funding. KinderCare has a strong network of support at the state level where approvals and disbursements are decided. This increases the overall effectiveness of the subsidy process, which aligns with the current administration's goal for efficiency. Our expansive ability to help families access subsidy funding remains a strategic advantage for KinderCare and one that is increasingly important during uncertain times. As we look forward to the remainder of 2025 and beyond, we believe the fundamentals underpinning our business are unchanged and remain confident in our long-term growth algorithm for the years ahead. That said, the macroeconomic environment has become more complicated since our Q4 earnings call. Tony will talk more about this shortly. I'll close my remarks by thanking our teachers, directors, and staff for all that you do. You are what makes KinderCare a special place to work. Because of your tireless passion, we have many exciting opportunities to do even more for families, and it energizes me to think about what we will achieve together in the coming quarters and years. With that, I'll turn the call over to Tony to provide more details on the quarter's results. Thanks, Paul.