KinderCare Learning Companies, Inc.

Good afternoon, ladies and gentlemen, and welcome to the KinderCare third quarter 2025 earnings conference call. At this time, all lines are in listen-only mode, and 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 Wednesday, November 12, 2025. I would now like to turn the call over to Ms. Olivia Keer. Please go ahead.

Thank you and good evening, everyone. Welcome to KinderCare's third 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. which is posted on our investor relations website at investors.kindercare.com under the financials tab. 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 the risk factor section of 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. I would also like to mention, for interested parties, our executives will be participating in upcoming fireside chats over the next few weeks, which will be publicly accessible on our investor relations website under the news and events tab. And with that, I'd like to turn the call over to Chief Executive Officer Paul Thompson.

Paul Thompson Thank you, Olivia, and welcome to everyone on the call with us today. In the third quarter, we saw success across our B2B and portfolio growth levers. Revenue was $677 million, up nearly 1% from last year, with same center revenue of $617 million. The softness we anticipated in organic growth continued, resulting in same center occupancy of 67% at the lower end of our expected range. Remember, Q3 is typically our lowest quarter due to summer seasonality. When thinking about our current occupancy, it's important to note that our top three quintiles, which are roughly 960 early childhood education centers, continue to operate around 80% occupancy on average. And our employer onsite centers average over 70% occupancy, while the balance of our network provides clear growth opportunities. I'll share in a moment some of the operational initiatives we focused on during the third quarter, which we believe over time will help ease the recent moderation in occupancy and position us to drive future growth. The back to school season unfolded amidst a more cautious consumer backdrop, which we believe influenced family decision making. While demand at the center level was adequate to support our enrollment objectives, our average weekly enrollments fell short of last year's mark. Additionally, we saw headwinds in our subsidy business in a handful of states, with near-term softening of tuition reimbursement rates and fewer new student authorizations. We believe the enrollment challenges reflect the current economic environment, are not permanent, and we expect to see a return to the historical performance we have experienced in subsidy enrollments in the future. It's worth noting here that our belief is rooted in the historical bipartisan support for childcare funding, we have seen both at the federal and state level. And we remain confident in the long term outlook for childcare subsidy funding. Turning to our other growth levers, we continue to make great progress in the quarter. Specifically, we find a number of new clients at our champion school age program and expanded our employer relationships. As employers look to offer dedicated onsite or access to our network of community centers for their employees. We also grew our center count through new center openings and tuck-in acquisitions, with the latter continuing to outperform on the year. Stepping back from the quarter's results, I'll spend a moment on what we're seeing in the broader economic landscape. Inflation remains elevated, and families are showing more caution in their decision making, as reflected in recent economic data showing an overall decline in consumer confidence. We recognize how these influences are causing hesitation for some as they make their childcare decisions. We believe these dynamics are likely to persist into 2026. In this environment, we're managing with a focus on discipline execution, operational efficiency, effective cash management, and a continued commitment to meet families in their local market where they need us the most. We believe KinderCare's national scale, strong subsidy partnerships, and ability to serve families across diverse circumstances position us to navigate these conditions with resilience. Our commitment to high-quality early education and the distinctive experiences offered through our centers strengthen our brand and reinforce the trust families place in us. These advantages give us confidence in KinderCare's ability to perform through varying and uncertain economic conditions. A number of families seeking subsidy assistance remains elevated across the country, and our government funding team continually seeks to engage state and local agencies in productive ways to expand care to as many of those families as possible. However, to maintain balanced budgets, some states have implemented measures such as wait lists and reducing reimbursement rates. In certain cases, these actions have had a significant impact. For example, in Indiana, roughly 13,000 fewer children are receiving subsidy assistance since the start of the year, and our full-time subsidy enrollments have declined proportionally in the state by nearly 1,000 children over that same period. At the same time, many providers in this state have been further pressured from reduced reimbursement rates. Other states are taking steps in the opposite direction. by expanding support for childcare with measures like reducing costs for families by lowering co-pays, increasing reimbursement rates, or in the case of New Mexico, pursuing a public-private solution to make childcare universally accessible. Regardless of each state's approach to appropriating their budget, we remain committed to partnering with state and federal leaders to expand access to affordable, high-quality childcare for families across the country. As these efforts unfold across the broader childcare landscape, we remain focused on strengthening our own operational foundation. As I mentioned, occupancy was at the lower end of our expected range due to a complex of near-term dynamics. Over time, we are confident that our ability to convert the demand we see in our centers together with ongoing positive and constructive engagement with state and federal leaders on childcare funding will be important drivers toward achieving our occupancy goals. Progress here may take some time. However, we believe we are taking the right strategic steps to build sustained improvement upon solid fundamentals. In order to accelerate our pace of results, we intensified our focus on the operational levers within our control, evolving our leadership talent, applying lessons learned from our opportunity region more broadly, and expanding the use of our digital and diagnostic tools. We concentrated on center-level improvements particularly enhancing both the speed and personalization of family interactions. Our digital tools continue to make it easier for families to move through the enrollment process, and for center directors to more effectively match available spots with family needs. The digital tools are also helping to drive overall improvement within our opportunity region, and in some cases creating significant impact at the center level. As a reminder, Our opportunity region is a collection of around 150 centers that we've determined to have high performance potential, which can be unlocked with focused attention and resources. One of our opportunity region centers located in Michigan and led by a veteran center director used our center diagnostic tool to pinpoint opportunities for improving enrollment and worked with our district leader to develop a remediation plan. Within eight months, she lifted occupancy from 48% to 95%. That kind of turnaround shows what's possible when we pair well-trained leaders with our tools to execute. I share this example to illustrate that despite the challenging environment, we are finding ways to make progress. Overall, we continue to see encouraging progress within the opportunity region, and we're applying the lessons learned from our successes there more broadly across our network. To be clear, we don't expect to achieve results of the same magnitude in all of our almost 1,600 ECE centers. We believe, however, that the easiest path for broad-based improvement in overall enrollment is generally going to be among centers that currently have lower occupancy, most of which are grouped in quintiles four or five. Beyond attracting new families, we're equally focused on the engagement of our current families. In fact, We recently completed our annual engagement survey and received over 130,000 responses from our families, which is near last year's record response total. This represents our 13th year of partnering with Gallup, and as a reminder, we measure both employee and family engagement. Consistently, we hear from families that they celebrate the positive impact that safe, high-quality childcare can have on their child's development and that the families are deeply connected to our center staff. In addition to receiving feedback, high levels of engagement help us maintain strong family retention. Our ability to create consistent, nurturing environments is a hallmark of the KinderCare experience and underscores the reason so many families stay with us year after year. Our focus on operational excellence extends into the management ranks as well. In order to better align our strategic operational goals with our growth initiatives, we recently announced the promotion of Lindsay Sorhando to Chief Operating Officer. Lindsay has been an incredible executive leader for us during her 12 years with the company, most recently as our Chief Innovation Officer. She has been a decisive business partner with a strong track record of execution and driving results. We're excited for Lindsay to apply her tremendous skill set to accelerating operational excellence throughout the organization. This structural alignment represents an important step forward in our broader strategy to sharpen brand level focus and connect our strongest operators directly to driving same center occupancy growth across our centers. Closer to the center level, we also took purposeful actions within our field leadership to strengthen performance. During the quarter, We refined our district leader structure to sharpen operational focus, increase accountability, and improve agility, while ensuring we retained our most effective leaders. These critical members of our organization are responsible for oversight and development of our center directors and are expected to step in and personally support them where help is needed. Turning to tuition, growth came in at 2% for the third quarter. which Tony will discuss in more detail shortly. With back to school finished, we are now finalizing our plans for 2026 tuition rates. As a reminder, we maintain a 50 to 100 basis point spread overall between wages and tuition. And we will continue with that strategy while setting tuition to reflect local market dynamics and needs. This financial discipline gives us the flexibility to continue investing in our other growth levers. B2B, NCOs, and tuck-in acquisitions, all of which performed to expectations this quarter. Our champions before and after school business continued to perform well with double digit revenue growth year over year, including meaningful growth in average enrollments in established sites. Year to date, we expanded the program with over 200 new site wins. The solid performance from the champions team this past quarter, and frankly all year, provides momentum for Q4 and the rest of the school year. KinderCare for Employers, which consists of our onsite employer-focused centers, also continued to perform well for us. During the quarter, we opened three new centers and employer locations and continued to develop our pipeline of opportunities. It's also important to note that occupancy at our onsites averages over 70%, which speaks to the great partnerships we have fostered with employers to let their employees know about this benefit available for their children. Employers are also expanding childcare benefits for their employees through our tuition benefit offerings. During Q3, we signed 20 contracts with employers, including Parkview Health System, Discovery Life Sciences, the Aspen Group, and Mass Mutual Life Insurance. Our new contracts were spread across 17 states, covering 317,000 employees, who will now have access to KinderCare's nationwide network of centers at a discounted tuition rate. We continued executing on our other growth levers during the quarter by welcoming families to two new early childhood education centers in Illinois and Colorado. This brings our year-to-date total to eight new center openings within communities. We were also very active with tuck-in acquisitions the past quarter by acquiring six centers across six different states, taken together We have clear visibility into these two levers and expect 2026 to be another active year. Looking at the remainder of this year, we'll continue to focus on improving same center occupancy and tuition by driving engagement and consistency through our leaders and center level teams. We expect our other levers will perform to our 2025 expectations, reinforcing the diversification of our model. With that, I'll hand it over to Tony to walk through the financial results and outlook.