KinderCare Learning Companies, Inc. Q2 FY2025 earnings call

Legislative Developments

• The Child Care and Development Block Grant (CCDBG) was fully funded in the latest federal budget, with additional provisions to expand child care access. Changes to the Employer-Provided Childcare Credit (45F) and expansions to child care tax credits were highlighted, providing support to families and employers.

Enrollment and Occupancy

• Average weekly full-time enrollments declined 1.4% year-over-year, leading to a 130 basis point decrease in same-center occupancy. Identified opportunity regions with centers needing support, using enhanced leadership, tailored operational guidance, and targeted marketing investments to improve inquiries.

Business Performance

• Champions expanded with 5 new districts, 6 new school-year sites, and 13 new Champ Camp districts. B2B business grew with partnerships like Maricopa County and signings with large organizations. Opened 8 new centers and completed 14 tuck-in acquisitions in the first half of the year, with plans to accelerate new center openings and tuck-ins moving forward.

In the second quarter, revenue was $700 million, growing 1.5% year-over-year. Same-center revenue was $638 million, up from $632 million the previous year. Champions revenue reached $52 million, an 8% increase year-over-year with 99 net new sites added over 12 months. New and acquired centers contributed $3 million year-to-date, a 23% improvement compared to the first two quarters of the prior year. Champions accounted for a portion of the revenue, and new centers and acquisitions were key growth levers.

Full-Year 2025 Guidance

• Refined revenue guidance: $2.75 billion to $2.8 billion.
• Adjusted EBITDA guidance: $310 million to $320 million.
• Adjusted EPS guidance: $0.77 to $0.82.
• Expect Q4 to be the strongest quarter for adjusted EBITDA. Free cash flow expected between $85 million and $95 million, CapEx in the range of $130 million to $135 million, and an effective tax rate of about 27%.

Risks

• Enrollment challenges at the center level, with local market-specific issues impacting occupancy.
• Macro factors such as trade, labor, and rate policy potentially affecting demand for child care services.

Q: Wanted to drill down on the enrollment trends that you're seeing.

A: Paul Thompson said there was softening in new student enrollment in June, a slight decline in top 3 quintiles, but improvement in bottom quintile centers. Anthony Amandi discussed center-by-center evaluation for closures.

Q: Maybe to talk a little bit more specifically about the drivers of gross margin in the quarter year-over-year.

A: Anthony Amandi stated that occupancy decline impacted margins as it's harder to leverage labor and rent when occupancy is down.

Q: How do you think macro factors could potentially impact your demand at a fundamental level.

A: Paul Thompson said demand from parents outweighs supply, but local considerations exist; Anthony Amandi mentioned continued confidence in other growth drivers like tuition, new centers, etc.

Q: Can you maybe just speak to some of the conversations you're having with employers and maybe how meaningful of an opportunity that increase -- that program could be?

A: Paul Thompson discussed educating employers about the benefit, but it's early; impact expected in 2026.

Q: How quickly can you sort of reverse or address the enrollment challenges that you're seeing currently?

A: Paul Thompson said an improvement was seen in 12-13 weeks since restructuring the opportunity region; Anthony Amandi noted incremental growth from back-to-school through Memorial Day.

Q: Given the diversity in these local market issues, does it mean that you have to develop a unique playbook to address each of these issues separately?

A: Paul Thompson said there's a unified diagnostic approach using data; Anthony Amandi highlighted the power of scale with region-specific business partners.

Q: I noticed that when we look at the growth algorithm for '25, you also changed some assumptions around B2B, Champions and pricing in addition to acquisitions. Can you speak to what changed?

A: Paul Thompson said Champions growth was slightly behind expectations but remains within the range; Anthony Amandi mentioned it's an insignificant additional spend.

Q: I just want to continue that last thought and maybe I'll play devil's advocate here a bit. You said that most of the softness was coming from prospective students. How do we know that things will improve between now and the summer if we're just going to have to wait again until next summer to see that improvement?

A: Anthony Amandi discussed incremental growth from back-to-school through Memorial Day; Paul Thompson mentioned digital tools and change management to support enrollment.

Q: Can we talk about labor costs? I know you're pricing ahead of that, but I'm just -- I'm wondering how those are trending.

A: Anthony Amandi said labor costs are stable, with high teacher retention and predictable wage increases.

Q: I just wanted to ask about the delayed enrollment decisions by consumers because of macro uncertainty, so basically elongated sales cycles. Is that something you're still seeing now?

A: Paul Thompson noted private pay families take longer decision processes, while subsidy families decide quickly.