Good afternoon, ladies and gentlemen, and welcome to the KinderCare Learning Companies, Inc. third quarter 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 0 for the operator. This call is being recorded on Wednesday, November 12, 2025. I would now like to turn the call over to Miss Olivia Kirrer. Please go ahead.

Thank you, and good evening, everyone. Welcome to KinderCare Learning Companies, Inc.'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 Factors section of our most recent annual report on Form 10-Ks and other filings with the 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 and 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, except as required by law, KinderCare Learning Companies, Inc. 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 executive team will be participating in an upcoming fireside chat 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.

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 is 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 on-site 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 and 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 child care funding we have seen both at the federal and state level, and we remain confident in the long-term outlook…

Thanks, Paul. Our third quarter results were mixed as revenue came in slightly below our expectations, largely reflecting a slower pace of enrollments through the back-to-school season. While this pressured margins for the quarter, cost discipline and positive cash generation remained consistent as Champions and KinderCare Learning Companies, Inc. for Employers, NCOs, and tuck-in acquisitions all continue to perform well. Let me walk through the quarter in more detail. Total revenue was $677 million, up 80 basis points from last year, with growth driven by Champions. Despite positive effects from tuition increases, early childhood education revenue softened due to slower enrollment activity during the quarter, which also resulted in lower occupancy for the quarter. Same center revenue was flat to last year, at $617 million, supported by generally robust retention levels during the third quarter, and continued contribution of prior new center openings and acquisitions being included in the same center pool. Total average weekly full-time enrollments decreased by 190 basis points to just over 140,000 students in the quarter, reflecting lower overall enrollment compared to last year and a softer starting point at the beginning of Q3. The new student enrollment dynamics during back-to-school compressed our same center occupancy to the low end of the range we expected for the quarter, finishing at an average of 67%, down 160 basis points from a year ago. As we look forward, remember that back-to-school is our highest new student enrollment period, and sets the start of the climb for the next seven to eight months, during which we historically have sequential growth each week until summer. Tuition was a 2% contributor to revenue growth versus last year, which was lower than we anticipated entering Q3, reflecting a higher subsidy mix, smaller subsidy rate increases than expected for 2025, further affected by…

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift a handset before pressing any key. One moment, please, for your first question. And your first question comes from Toni Michele Kaplan from Morgan Stanley. Please go ahead.

Hi. This is Yehuda Solderman on for Toni Michele Kaplan. Just had a quick question about enrollment. So we know it's been a bit weaker all year, weaker in this quarter. Just wondering heading into 2026, what your expectations were surrounding it, at least directionally? I know you mentioned that there's been some hesitation. Do you expect it to be in 2026 at current levels, worse, or better? Just want some color on that. Thanks.

I appreciate the question. And as Tony said in his comments, that's what we're watching for in the remainder of 2025. So that we can clearly see any continuation of impact from the government shutdown. What I would tell you is we still feel very good about the level of inquiries we're seeing at the local level of each one of our centers. We continue to see improved performance from our center directors and district leaders on how they work those inquiries into enrollment. And then as we continue to see confidence return for our consumer who are in that space, we believe over the long term, we will return to the growth algorithm we've talked about historically for growth for KinderCare Learning Companies, Inc. And our scale and diversification allow us to do that.

Great. And just a quick follow-up. So you mentioned in the guide that there was no direct impact from the government shutdown. But the uncertainty added more issues heading into the end of the year. Is there anything factored into the guide itself? And if so, to which growth algorithm assumptions is this tied to?

Yeah. So what we did not see, right, very, very, very few families that were impacted by it. We extended a couple of courtesies to a few families here and there that were impacted to help them make it through. And that would be great for them and for us in the end. Just some of the uncertainty continues to come from some of the things we talked about. That we think it's putting pressure on the states as they think about what they're doing in the future as far as their spend. We are in constant talks with all those states. Know that there's a lot of thought process going on and what the impacts to their budgets might be by something like this in the future too. And so that's just kinda where some of the uncertainty currently sits.

Got it. Thanks.

Thank you. And your next question comes from Andrew Steinerman from JPMorgan. Please go ahead.

Hi. I was wondering what timing you think you could get back to the long-term algo. And I think you said for 2026, expect pricing increases to be higher than 25%. Could you just comment on that?

Yes. No, that's right, Andrew. We believe they'll be higher, right, as we're ending this year on 2%. So we're still finalizing what our private pay rates will be for next year that'll go in place January 1. We're not quite there on the private pay side. And then a little bit, like I just mentioned, still some of that uncertainty we wanna see what happens here with the states as we conclude our fiscal year and head into next year and have some better expectations for what's gonna happen on the subsidy side. We still have direct confirmation with some states what they're doing. There's a number. There's still we're not sure yet. So that's why we're not going out with a guide, but at this point, feel good that it'll be above next year. I mean, this year. Sorry. Next year will be above this year.

Right. And my first question was when do you think you'll get back to Algo?

As far as pricing, Andrew?

No. No. Overall, your medium-term algorithm when do you think what do you think you'll get back to? What type of timing do you think you'll get back to the medium-term algorithm overall?

Overall, we will get back to the algorithm in 2027. And then what we're watching for is clearly on B2B and NCOs and acquisitions, we continue to be in 2026, as Tony articulated, on track for that. Feel good about tuition. And then for us to continue to make progress on occupancy specifically.

Understood. Thank you very much.

Thank you. And your next question comes from Ronan Kennedy from Barclays. Please go ahead.

Hi. This is Ronan Kennedy on for Manav. Thank you for taking my questions. Tony, may I ask if you could please expand or just remind us on the softer starting point you referenced for the back-to-school enrollment period. And then could you confirm the extent to which the lower enrollment was driven by macro factors, the softening of reimbursement rates, fewer student authorizations, or internal opportunities for improvement, of conversion?

Yeah. So look, the reference to the softer start was already that we were bringing in a lower number coming into back-to-school, right, than we would have liked to really start the year. So it's part of my talking points there was that, you know, Q2, as we headed out of the summer, was at a lower point than we would have liked to be heading in. So that kinda gives us a softer starting point for back-to-school in general. To do it. As far as kinda I don't think we I we don't have a quantitative number for you in each one of those, Ronan. They're obviously all impacting it. And we're well aware that the consumer confidence environment and people thinking about their next dollar spent is clearly impacting our whole economy. Once you get down to a local level though, then that's on us to show the value you get out of spending those dollars to come to KinderCare Learning Companies, Inc. and having your child ready to be ready for kindergarten as they get through with us. And so that gets down to the local level. Where it's on us to utilize those tools and tell those stories and show that value. And so that those those kinda Gantt charts start to overlap quite quickly. And then the subsidy one, Paul alluded to Indiana. Indiana's the biggest state for us. It's definitely impacting us. With being down a thousand students from the start of the year. Based on some of the decisions they've made to balance their budget what they've done to waitlist and some freezes. We have a couple other states that aren't up to that level but have also been a really drag to us here at back-to-school as well. So hopefully that helps.

Thank you for that. And then you provide any insights on your occupancy trends by quintile through the quarter and exiting into 4Q?

It's consistent with what we talked last time about that slight decline in the top three quintiles and then an improvement in that fifth quintile. That continues to give us the confidence what we're talking about returning to our long-term growth algorithm is the improvement we're seeing in our opportunity region. We've talked about the larger opportunity that exists in our lower occupied centers. So the diagnostic tools and the digital tools are working well to enable that growth, and we believe that will continue.

Thank you. Appreciate it.

And your next question comes from Jeff Meuler from Baird. Please go ahead.

Yes. Thank you. Just on your optimism for getting back to Elgo in 2027 and characterizing this as short-term factors, can you just address I guess, the structural concern that industry supply has been built over time and you're now combining that with a lower birth rate and the industry had taken a lot of above CPI pricing that's compounded over time that's pricing families out of the market. Just what gives you confidence that it is just short-term factors and not a greater, supply-demand imbalance that's built in the industry over time.

Yeah. You know, great question. And there are many factors that we're watching. Beyond birth rates, you're also looking at women in the workforce. You're looking at children ages zero to five. And all those things accumulate to what we track as inquiries per center. So that we know that we're getting the sufficient flow of inquiries at the top of the pipeline to fill our centers. And that is the most important thing to us, which continues to be very, very good for us. In addition to that, the bipartisan support for child care so that we can have a thriving economy across the US so working parents can go back to work and know that their children are in a safe environment where they're being ready for a successful kindergarten transition as they go into that. So those things about seeing bipartisan support for our lower-income families, the continuation of good inquiries, even through the last number of months as we came into this back-to-school, and then knowing there's a lot of controllable factors for us, one of which we just mentioned is our center directors slowing down with those parents who are looking at making an investment in their child for early childhood education. Is us helping them recognize their child, the longer they are in our care, the more successful they're going to be in kindergarten and beyond. And that's a really compelling argument as we talk to or justification is probably a better word as we talk to parents. So all those things as we continue to improve the talent across our organization at that district leader as I talked is what gives us confidence as we move into 2026.

And then beyond, I guess, disciplined cost management and operational efficiency initiatives, at what point do you more proactively take cost out of the business? I ask because we're now in a position of revenue declines on a per-week basis. And it looks like the EBITDA deleveraging on the revenue adjustment and guidance is pretty significant. So at what point would you be more proactive about taking expense out of the business?

It's something we're looking at all the time on evaluating the efficiencies of different investments we're making to become stronger on the digital side or other investments across our teams. And so there's things that we're already doing to ensure we're delivering the best flow through of profit from the revenue that we do have. Labor continues to be a big part of our P&L, as you well know. So continuing to think about how we up-level our sophistication around labor is another piece that we'll continue to lean into. So there's a number of ways that we can ensure that whether it's G&A or labor or other things that we have from a cost control, we are watching that all the time and talking about any more aggressive measures that we should be doing all at the same time that we're delivering long-term revenue growth is very important.

Thank you.

Thank you. And your next question comes from Jeffrey Marc Silber from BMO Capital Markets.

Thanks so much. I just wanted to continue on Jeff's question. Are you thinking at all about more aggressively closing some centers? You didn't really mention that when you talked about some of your cost control.

Yeah. I wouldn't necessarily say more aggressively, Jeff. We are constantly looking at the right centers for us to maintain and go forward with them. Right? So that starts with the demographic look and a little bit, that's what Paul was talking to. Like, where are our current inquiry levels? Where are competition levels? On an outside of our walls one. And then basing that then against inside our walls. Where are engagement levels? Are we performing to those right levels? And then where is our profitability based on rent and labor and things like that. So we're constantly looking at those. We are up for closing centers, and I think that's been clear in the past. We don't have a cap for how many centers we need to do. If it's the right time to close centers, we'll do that. Obviously, you're looking at lease timing on those. And making sure that the ROI on a closure does make sense. But you won't see us hesitate to close centers that should be closed. But we'll continue to keep the ones open that we think can and should be profitable, not only in the long term, but in the short or medium term too that we believe we can get there. The right methods.

Alright. Fair enough. And let me just continue this questioning. You continue to make acquisitions I know it's a small piece of the capital allocation, but would that be something that you might consider putting on hold and maybe shifting more towards a little bit more aggressive deleveraging? Thanks.

Yeah. So as we sit today, our board is pushing us to continue to make sure we do have that medium to longer-term look on the use of our capital. And so as we sit today, we are going to continue to fund that NCO engine which, you know, is a couple of years out from when we say yes on the center. And also continue on the tuck-in ones. We're still getting nice value on those. In the very low single-digit EBITDA multiples. And think that that's both helpful for short-term and long-term.

Alright. Thank you.

Thank you. And your next question comes from George Tong from Goldman Sachs. Please go ahead.

Hi. Thanks. Good afternoon. I wanted to go back to enrollment trends. Can you estimate how much of the enrollment headwinds you're seeing are due purely to economic factors like confidence versus more idiosyncratic factors at the local level?

You know, it's difficult, George, to draw a line of direct correlation to those factors. To the enrollment. What we would tell you is but for those handful of centers or, excuse me, states, where we saw a slowdown of subsidy we would be in a much stronger position closer to flattish enrollment. And so that in of itself is something that we know is more short-term in nature. Then there are other things where we see as we've talked to you before, the decisions from parents and the longer cycle around that that they are considering consumer and thinking about the overall macro conditions, but nothing that we can provide to you on a direct correlation, just recognizing that it does these factors have an impact.

Got it. That's helpful. And along the same lines as you look at the center diagnostic tools and the various findings at the various centers, especially in the opportunity regions, what have been the latest, local factors that have come up most frequently as preventing enrollment growth? And have those factors changed from the prior quarter?

So from you know, the way I would answer it with what we're seeing with our opportunity reach, and them using and the change management and adoption that goes with those diagnostic tools and digital tools, we actually are seeing stronger enrollment in those centers. So it is working, and again, they are at lower occupancy. So the range of age groups and parents that you can activate across that pipeline, are more significant. And so what I would answer to your question is continuing to take those learnings from opportunity to region, continuing to be more proactive with our parents in our higher occupied centers. Those things will continue to minimize the reasons why a parent isn't enrolling as quickly as they might have been over the last few months in our higher quintile centers.

Got it. Thank you very much.

And your next question comes from Joshua Chan from UBS. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. I guess a question on the Q4 enrollment that is baked into the guidance. Like, how low does guidance? Is it around the four percent decline mark? I guess that's important because it sort of sets the stage, like you said, for the remainder of the school year, I guess.

Josh, will you ask it one more time? So I heard you reference a 2%, and then we lost you for about six or seven seconds, and you said four. Can you restate it one more time for me?

Yeah. Yeah. I apologize. I'm wondering what type of enrollment decline is baked into the Q4 because that forms the run rate into next year.

Yep. So we obviously gave you kind of a guide for the full year. Right? We're seeing Q4 so far be slightly slightly below, where we were at Q3. So it's not nearly as dramatic as you know, your numbers are suggesting. But, we are seeing a slight flip that, like you said, take us into the holidays, holidays being an important inflection point. It's kind of a number three behind summer and back-to-school. And how we come out of that. And then that really sets range outcomes, through May.

Okay. That's helpful. And then on the margins that's embedded into the Q4 guide, could you just talk through what is happening to cause the relatively steep change in terms of the EBITDA expectations relative to the revenue expectation change?

Yeah. Of course. Yeah. So, look, the revenue is being caused by two different things, right, that we talked about. And so I'll take those two and talk about the impact. Occupancy dropping a little bit more than we thought is having some impact. Occupancy declines obviously don't have as big of an impact on EBITDA. As do pricing, but it does. Less students, obviously, is bringing in less revenue, which brings in less EBITDA. Then obviously an occupancy decline impacts our ability to leverage, especially our gross margin and even our G&A a little bit. So we're seeing definitely some impacts from that. And then the other one is the pricing. Alright? So as we're seeing a few of these states, Indiana, again, being one of the big ones, drop some of their reimbursement rates, those dollars flow pretty much straight through to the bottom line. And so that dropping to 2% is really the probably more powerful thing here in the fourth quarter that dropped our EBITDA guide.

That makes a lot of sense. Yeah. Thanks for the color there.

Thanks, Josh.

Thank you. And your last question comes from Faiza Alwy from Deutsche Bank. Please go ahead.

Yes. Hi. Thank you. I want to just make sure that I'm understanding the mechanics around the subsidies, especially after listening to the last answer from you, Tony. So just maybe could you take a step back and just explain to us, you know, maybe how much of an impact that had on the quarter or you're expecting to have, you know, on the year? And kind of what the when do you expect resolution and, like, what should we be following to get a better sense of you know, where we land here, whether things are getting you know, better or worse in the specific states. And know, any sort of timeline or decision when other states might make certain decisions around you know, these reimbursement.

Yes. Most of the states have already worked through that. And what is the origination from it is everything not related to child care specifically. So all of that was fully funded but these are the discretionary dollars this year as other impacts flowed into states. They needed to think about how they budgeted for the new fiscal year. And so it is the expectation that every state has already gone through the awareness for what their funds need to be or what their balanced budget needs to be going into 2026. Where we saw the most significant change, as I mentioned, was in a handful of states. Even in two of those states, Texas and Arizona, they after that time, have come out that they're adding both of them are in the $50 million to $100 million over the next two years. Some of that will come in a rate improvement. Some of that will come in additional chairs for children. So I believe that we're through it with most states. We've already seen those two states take a different weighing back in. And then for the remaining states, there's a continuation of that going into 2026.

Okay. Understood. And then just on the pricing comment, that pricing is gonna be higher in 2026. Like, I'm curious what you're seeing from a wage inflation perspective and I know the question has been asked before around you know, whether or not the end consumer is sort of ready for that pricing given the level of inflation that we have seen generally. So just give us a bit more color around why you think pricing will be higher and what's driving the decision behind higher pricing in '26?

Yeah. So I'll take your wage one first, which I think you were leading me to the second one, Faiza, because you remember how we really do that as kind of a starting point. So we're working on wage right now and where we believe that will end. And are pretty much there on that one. We utilize that one to test ourselves, but we're always trying to make sure we can get 50 to 100 basis points differential, and at this point, believe we can again next year. From there, kind of in parallel, we're working at a center level to look at a number of factors. The ones internal to us are engagement levels and our occupancy are the two biggest ones. How those families feel with us and how many we have, obviously, are two big factors there. And then externally, we're looking at number of competitors. We're looking at competitor pricing. We're looking at general other demographic factors for that local center. So as we're seeing the early roll-ups of where we think we're going to land, and believe what we can do at that center by center level are the things that give me the confidence to make that statement.

Sorry. If I can just clarify. So do you think that 50 to 100 basis points differential can actually be higher in '26, or is it really the higher wage growth that's leading to higher pricing?

Yeah. So I wouldn't say they tie directly, but we will still be at 50 to 100 basis points next year as well. So I don't want you to walk away thinking wage growth leading to higher pricing. We believe we know where we'll land wage. And with the tools we have, we can be pretty precise for that. For the year. And we are also confident we can create 50 to 100 basis points of price based on our individual center dynamic.

Got it. Thank you.

Thank you. And there are no further questions at this time. I will now turn the call over to Mr. Paul Thompson. Please continue.

Thank you, Kelsey. Just last month, we passed the one-year anniversary of becoming a publicly traded company. As we move forward from this milestone, we are focused on the SEC discipline in driving continuous improvement in all facets of our organization. Our long-term strategy remains sound, and we are confident in our ability to deliver against it as broader economic conditions improve. Thank you all for joining us today, and we look forward to speaking with you again soon.

Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation. You may now disconnect. Have a great day.