KinderCare Learning Companies, Inc.

Order 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, August 12th of 2025. I would now like to turn the conference over to Ms. Olivia Kier, Vice President of Investor Relations. Please go ahead.

Thank you and good evening, everyone. Welcome to KinderCare's second 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 SEC. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks 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 our Chief Executive Officer, Paul Thompson.

Thank you, Olivia, and welcome to everyone on the call with us today. In the second quarter, we delivered year-over-year growth in both revenue and adjusted EPS and continue to advance key priorities across the business, even with a more challenging comparison on adjusted EBITDA. Before getting deeper into results, I'm going to start with recent legislative developments which have brought greater certainty to the child care funding environment. Consistent with historical experience, support for early child education remains strong as the Child Care Development Block Grant, or CCDBG, was fully funded in the latest federal budget approved last month, in addition to multiple other provisions aimed at expanding access to child care. We believe KinderCare has a competitive advantage as we are one of a few providers with scales that both accept and actively support families using approved subsidy vouchers as a core offering across our nationwide network. Navigating the subsidy process can be complex and time consuming for families. This is an area where many providers lack the resources or willingness to assist. In contrast, our team helps families move through the process efficiently. And we found that once a voucher is approved, these families tend to make enrollment decisions more quickly than private pay families. The support for the CCDBG is aligned with our expectations, and we are happy to be an advocate for American families' access to this critical funding source. What has received less fanfare, however, are the additional child care support provisions included as a part of the new federal budget and set to take effect in 2026. The first is the change to the employers provided child care credit, or 45F. Historically, employers could receive a credit of 25% and deduct up to a max of $150,000 per year for qualified expenses supporting employee childcare. Under the new budget, employers will be able to receive a credit of 40 to 50%, and the maximum deduction increases to $500,000 for large companies and $600,000 for small businesses. For many employers in the U.S., a 40 to 50% tax credit on spending could be substantial. At the same time, we found that nearly two-thirds of parents believe employers should help offset childcare costs. Additionally, younger generations often cite childcare as one of the most valued workplace benefits. The increased credit for large and small businesses has the potential to accelerate the adoption of childcare as a basic and expected benefit for employees. Our tuition benefit offering is well-positioned to partner with employers. as it gives them the ability to sponsor up to 100% of the cost of tuition. While it is still early, our teams are educating employers on the new provision. Beyond employer tax credits, the new budget is the first in decades to broaden the Child and Dependent Care Tax Credit as well as increase the Dependent Care Assistance Program, or DCAP. In the case of the Child and Dependent Care Tax Credit, the deduction benefit will increase from 35% of expenses to a max of 50% based on income level. And for the DCAP, the credit will permanently expand by 50% to $7,500 per family per year. According to the Bipartisan Policy Center, these provisions within the new federal budget in aggregate effectively increase American families' buying power for early childhood education by an estimated $16 billion over 10 years. Put more directly, We believe that the uncertainty surrounding Congress's support for early childhood education funding is now much clearer. Best of all, this tailwind impacts both federally subsidized tuition and private pay tuition, offering meaningful support to families who don't qualify for subsidies but can benefit from the new tax credits in the 2026 tax year. So, with that overview of the funding environment, I'll now shift to discussing enrollment and occupancy. which came in below our expectations for the quarter. Average weekly full-time enrollments for the second quarter declined 1.4% from last year, which drove 130 basis point decrease in same center occupancy. Put in perspective, that's roughly one to two children per center across our portfolio. We do not believe there's one specific headwind or industry dynamic driving this overall, but that the issue is more center level and local market specific. That said, We have identified opportunities where more support and action are needed to improve operating performance and where we have influence and control. As part of our performance benchmarking process, we regularly assess center level trends to identify both strengths and areas of opportunity. Late last year, that analysis surfaced a number of centers with growth opportunities where additional support and focus will help to unlock their potential. We have since aligned these centers into what we call our opportunity region. Through enhanced leadership and tailored operational guidance, this structured initiative is designed to improve performance and provide targeted and individualized support where it's needed the most. These centers are now benefiting from the same proven practices and frameworks that have driven strong results in our highest performing centers. Complementing this work, we've also made targeted marketing investments in centers where low inquiry volume has been a primary constraint to occupancy improvement. The incremental dollars are focused on improving the digital presence and local awareness of the centers within their immediate markets. Early signs are promising as we are seeing positive results in inquiries. Though there is still work to do, the early traction supports our strategy. We're accelerating the adoption and usage of digital tools designed to enhance operational efficiency and elevate the quality of family engagement at the center level. In many underperforming centers, we found that center directors spend a disproportionate amount of time managing phone calls and coordinating tour schedules. By introducing an online tour schedule for families to use, we streamlined that process, enabling directors to shift their focus towards more impactful priorities. namely building stronger engagement with staff, teachers, and families. Our digital tools also offer increased visibility into forward-looking enrollment trends. At the management level, district leaders can leverage a digital occupancy whiteboard that provides real-time insights into center-level enrollment and occupancy. This enables them to proactively allocate resources more effectively, capitalize on opportunities, and identify areas to mitigate emerging risks before they impact performance. This data-driven approach is strengthening our operational agility and ensuring we're well positioned to deliver consistent, high-quality experiences for the families we serve. In summary, while enrollment and occupancy presented challenges this quarter, we continue to hold ourselves to a high internal standard. We've identified specific cases and situations across our entire footprint, where we see clear opportunities to improve execution and engagement. We're focused on addressing these issues with urgency and precision in the months ahead. Turning now to business performance, Champions, which is our before and after school business, ended the normal school year with a quarter full of wins and accolades. We expanded our footprint by five new districts in Q2 with six new sites for our school year program and 13 new districts for Champ Camp this summer. The Champions team also grew our existing footprint by adding sites in seven existing school districts. At the end of the quarter, Champions sites totaled 1,043, reflecting over 10% growth in the past 12 months. Our ability to deepen our existing relationships was highlighted this quarter when Champions was honored by the Hacienda La Puenta School District in Southern California. The team was awarded the Partners in Educational Excellence Award and only the third year of partnering with the district. The award nominations include heartfelt letters from four school principals expressing their admiration for Champion's professionalism, consistency, and a positive influence on their school environments. Subsequent to Q2, Champion's expanded into three new states in Connecticut, Minnesota, and New Mexico. Additionally, we're celebrating a partnership with Performance Academies in Ohio We expect to serve children in 13 schools across the state. We're extremely proud of the work and successes from our champions team and look forward to the great partnerships they continue to build. Staying with B2B, we continue to attract strong interest from both public and private employers who value the flexibility of our onsite and differentiated tuition support offerings, with each meeting different workforce needs. At the same time, as more employees return to the office, families increasingly appreciate the flexibility of our community-based locations, which make it easier to coordinate pickups with a spouse, grandparent, or trusted friend. We believe these shifting workplace dynamics are fueling continued momentum in our B2B business and expanding the reach of our community-based centers through our unique suite of employer-sponsored tuition benefit programs. A standout example is our partnership with Maricopa County, which announced a new 12,000 square foot kids club in downtown Phoenix this past May. The onsite center officially opened on August 4th, and we're now welcoming families into this modern purpose-built facility. Beyond the center itself, county employees are also leveraging tuition benefit and benefit plus offerings at our community centers across Maricopa County. Early enrollment uptake has been very strong, and we look forward to supporting more families in the coming weeks. The flexibility that comes with our tuition benefit offerings is very attractive for employers of all sizes. In Q2, we signed large organizations such as John Deere, UC Davis Medical Center, and the Association of Texas Professional Educators. Also, smaller employers such as Blue Sky Restoration, Barnes and Thornburg LLP, and Wheaton College are partnering with KinderCare to increase access to high-quality childcare for their employees. I'd like to welcome them all into the KinderCare family. I speak for the entire team when I say that we are all excited to be a part of their children's development and family's future. Our ability to support employers of all sizes is directly tied to the strength of our center network. To that end, we've continued to expand the reach of our portfolio with eight new centers opened and 14 tuck-in acquisitions completed in the first half of the year. We have strong forward visibility into both of these growth levers and are confident in delivering against our full-year targets. In line with our disciplined approach, we have also consolidated seven centers so far this year to ensure a healthy performance-driven portfolio. The second quarter did have some enrollment challenges, but those don't define the strength or trajectory of our business. We delivered meaningful wins, took decisive action where needed, and are heading into the back half of the year with greater clarity. The predictability of our controllable growth drivers, tuitions, new centers, and acquisitions, together with continued performance in B2B and Champions, reinforces our long-term confidence in the business. We're now focused on finishing the year with momentum and setting the stage for a stronger 2026. I'll turn the call over now to Tony to provide more details on the quarter results and our outlook for the rest of this year.