KinderCare Learning Companies, Inc. Q1 FY2026 earnings call

• Core Enrollment Improvement Initiatives

• Overall ECE enrollment remains a primary pressure point, but sequential improvement was seen, with a smaller 3% year-over-year decline compared to 3.6% in Q4 2025. Management expects gradual improvement through the first half of 2026, with material progress targeted in the second half, as enrollment improvements take time across the large center portfolio.
• Increased and refined targeted marketing investment has driven a 15% inquiry increase in targeted areas and a 3% overall inquiry increase year-over-year, with early conversion improvement visible in some segments. Efforts are focused on reducing administrative burden for center directors to allow more time for family engagement, tour quality, and follow-up, which are key drivers of conversion and enrollment.
• The opportunity region (a portfolio of previously underperforming centers led by a specialized leadership team) delivered 8% year-over-year enrollment growth, driven by focused operational improvements and cleared priorities for center directors; this result is being used to replicate best practices across the full portfolio.

• Portfolio Optimization

• Management completed a comprehensive real estate portfolio assessment, and expects a higher number of center closures in 2026 than the typical annual rate of 1% of centers. The process prioritizes minimizing disruption to families and staff, with proactive support to transfer both to nearby open centers. Closures are expected to create near-term variability but will strengthen long-term occupancy and profitability.

• Product and Brand Development

• The CRIM segment completed a successful rebrand, leadership change, and launch of a new proprietary advanced curriculum, which has received unprecedented positive feedback from families and driven stronger inquiry conversion, particularly for younger students.
• In-center small group enrichment programs (phonics, languages, STEM, music) are being expanded, including into summer camps, to drive incremental revenue, improve family retention, and add value for centers; early results are encouraging.
• Champions growth remains on track, with improving quality of new site opportunities, including additional locations at existing client schools.

• Policy and Subsidy Landscape

• Management reports strong bipartisan support for childcare at the state and federal levels. Federally, an additional $85 million in CCDBG funding was approved in February 2026. Multiple states have taken constructive action to expand subsidy access and reduce waitlists, including a $200 million investment in Indiana that will cover 14,000 additional children. Lower subsidy reimbursement rates continue to pressure results, but this is expected to persist only through current state budget cycles.

• Financial Performance

• Q1 2026 adjusted EBITDA was $52 million, compared to $83 million in Q1 2025. Lower occupancy is the primary driver of lower adjusted profitability, as labor requirements are fixed due to mandatory student-teacher ratios, limiting operating flexibility at current occupancy levels. SG&A as a percentage of revenue was 10.6%, down slightly year-over-year, with further efficiency improvements expected. A non-cash impairment charge of $290 million drove a reported net loss, with no impact to liquidity or the company's outlook. The company ended the quarter with $133 million in cash and $190 million in available revolving credit capacity, with net debt to adjusted EBITDA just under 3x, within the targeted range.

KinderCare operates three core business segments: early childhood education (ECE) centers (flagship KinderCare brand, CRIM), Champions before and after school programs, and B2B childcare tuition benefit services. In Q1 2026, overall company revenue was $673 million.

• ECE Centers: Total year-over-year enrollment declined 3% (an improvement from a 3.6% decline in Q4 2025). Same-center revenue decreased $7 million year-over-year, driven by lower enrollment, partially offset by 2% growth from tuition pricing. Same-center occupancy was 66% for the quarter, up 150 basis points from Q4 2025 and down 310 basis points from Q1 2025. The CRIM segment has seen strong early results from a new brand positioning and updated curriculum, with 8% year-over-year enrollment growth in the priority opportunity region.
• Champions: Revenue grew 17% year-over-year, driven by new site openings and incremental pricing. The segment ended the quarter at 1,159 sites, up ~10% in site count from 1,038 sites a year prior, contributing 70% of the company's total growth and representing an increasingly important diversifying revenue contributor.
• B2B: Demand remains strong, with 12 new tuition benefit clients signed in the quarter, and it is a growing complimentary driver of overall growth. Expected to contribute 1% to full-year 2026 revenue growth. New and acquired centers (5 total added in Q1: 3 new openings, 2 acquisitions) contributed $12 million in revenue in Q1 2026, a 35% increase from the year-ago period. New center openings and acquisitions are expected to contribute 50 basis points each to full-year 2026 revenue growth.

• Full-year 2026 revenue guidance is maintained at $2.7 billion to $2.75 billion, with tuition (+3%) and occupancy (-3%) expected to have offsetting contributions, consistent with prior assumptions.
• Full-year adjusted EBITDA guidance was raised to $215 million to $235 million, and adjusted EPS guidance was raised to $0.15 to $0.25, to reflect stronger than expected Q1 2026 performance, while still assuming gradual momentum building through the second half of the year. The upward adjustment reflects one-time Q1 outperformance from unexpected higher grant revenue and temporary labor timing benefits, which management does not expect to repeat through the rest of the year.
• Full-year CapEx is expected to be approximately 5% of revenue, with free cash flow projected between $35 million and $40 million, and an effective tax rate of 27% for modeling.
• Incremental center closure impacts from the ongoing portfolio optimization review are not included in the 2026 full-year guidance, beyond the standard 1% annual closure offset. Management will provide updated details and adjusted guidance when it reports Q2 2026 results, after the closure review process is completed.
• Q2 2026 guidance calls for revenue of $690 million to $700 million, and adjusted EBITDA of $63 million to $67 million.

• Sustained lower ECE enrollment remains the primary near-term risk to profitability, as fixed labor requirements due to mandatory student-teacher ratios limit operating flexibility and pressure margins until occupancy improves.
• Lower than expected subsidy reimbursement rates continue to pressure results, and are expected to persist through current state budget cycles.
• The higher than usual volume of center closures planned for 2026 is expected to create near-term operational and revenue variability, even as it improves long-term portfolio performance.
• Enrollment improvements take time to implement across the large portfolio of nearly 3,000 locations, and there is uncertainty around how quickly operational changes will drive consistent conversion of higher inquiry into net enrollment gains across all segments and regions.

Q: The company noted higher inquiry from increased marketing investment; what is driving this increase, and can it be sustained? What occupancy decline is embedded in full-year guidance? / A: Higher inquiry is driven by reduced administrative burden for center directors freeing up time for growth, and effective targeted paid search. Management confirms full-year guidance still embeds a 3% year-over-year enrollment decline, consistent with prior assumptions, reflecting the sequential improvement already seen from Q4's 3.6% decline. The company is already planning to expand successful targeted paid search to more geographies as it learns what strategies drive the best returns.

Q: Why is the opportunity region seeing 8% enrollment growth, and what explains its outperformance relative to the rest of the portfolio? / A: The opportunity region, a group of previously underperforming centers, got dedicated focused leadership and cleared priorities for center directors over a year ago, before these changes were rolled out to the rest of the portfolio. Center directors there were able to focus exclusively on tour experience, family engagement, and teacher quality, which has driven strong results. This model is now being replicated across the full 1,600-center ECE portfolio, with management confident similar results will follow in the second half of 2026.

Q: Why is revenue guidance maintained despite plans for higher incremental center closures this year? / A: The portfolio optimization review is still ongoing, with lease negotiations and closure timing still being finalized. Management has not yet finalized the list and timeline of closures, so it cannot yet quantify the full impact on 2026 revenue and profitability. For now, guidance only includes the typical 1% annual closure assumption, and updated guidance with closure impacts will be provided when the company reports Q2 2026 results once the process is complete.

Q: What is the threshold for closing vs turning around underperforming centers, and what explains the second half material improvement expectation? / A: The company first tries to turnaround potentially improvable centers by placing them in the opportunity region to test improvement with focused operational changes before making a closure decision. Management expects material improvement in the second half because it takes time to roll out operational changes (clearing director priorities, adjusting marketing strategy) across the company's large footprint of ~3,000 locations. Back-to-school season is the company's key enrollment inflection point, and operational changes will be fully embedded by that point to drive growth.